7 Vital Facts You Should Know About Debt Consolidation, But Don't
1. Debt Consolidation has become the number one answer for controlling high interest rate debts.
Debt consolidation is about combining all of your debts (credit card debt, personal loans and other bills) into one new loan. It generally involves a number of unsecured loans which are then combined into another unsecured loan, or into a secured loan against an asset such as a house.
With increasing credit card debt throughout Australian households, Lending Advisors are recommending Debt Consolidation Loans as an alternative to the high interest rate credit card, because even unsecured loans from lending agencies have a much lower rate. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest.
2. Debt Consolidation is available through a number of different methods, including:
Home Equity
If you have equity in your home, a very cost-effective method of Debt Consolidation is to re-draw against your home loan. This will substantially reduce interest payments, as home loan rates are often lower than other finance packages. Using equity in your home is attractive to your potential Debt Consolidation Lender because of the security. If you don't have a mortgage, it might be possible to consolidate your debts into a personal loan.
Debt Consolidation Loans
These are personal loans specifically designed for the purpose of consolidating debt. When considering a Debt Consolidation Loan, research the product wisely. Ensure the repayments will be substantially lower than what you are paying out for your current debt. Also do the maths and check that you will make long-term savings over the life of the new loan.
Credit Card Balance Transfers
Putting all your debts onto a 'low' or 'no interest' credit card can allow you to save over the period of the lower interest rate. However, remember once the interest free period is finished the interest rate on the card will probably shoot up to a rate similar to the one you were trying to avoid by consolidating in the first place! If you want to consolidate using this method, make sure you pay all (or a good portion) of the debt off before the special rate period ends.
3. Lower interest rates, lower payments and a longer payment period are just some of the benefits of Debt Consolidation.
Usually Debt Consolidation allows you to pay lower monthly instalments because you are benefiting from a lower interest rate and repaying over a longer term. But the true beauty of Debt Consolidation is that there is an end to that term. That's right - once the term is finished you can be debt free.
A way to speed up that position of 'debt-free' is to make additional repayments on your Debt Consolidation Loan each month. This will cut the loan down considerably. If you only pay the minimum amount each month, the debt will remain active for the whole life of the loan.
4. Debt Consolidation can eliminate extra charges associated with multiple debts.
Remember for each credit card, store card, loan, etc. you are more than likely charged a fee on every transaction. And each time you make a payment you are incurring a charge. Imagine that: the act of paying out your debt, costs you! If you add up all of the bank fees associated with your credit cards and other debts you may find that you're sinking further and further into debt each month. Or you may be frustrated to find that you are only paying off a small portion of the debt - and if you continue in this way, you'll be paying your debt off for the next 120 years of your life! You would be wise to control the charges by putting all of your multiple loans and debts into a single Debt Consolidation Loan and incurring just the one fee.
Juggling multiple debt repayments can be stressful and you have more opportunities of missing a payment, and incurring even more fees. Debt Consolidation gives you the convenience of only needing to keep track of one single, regular loan repayment instead of numerous ones. And imagine only ever having the one creditor.
5. Feeling bad about debt attracts more debt.
There's nothing wrong with debt. You might find this an odd statement at first, but consider this, debt is created to move forward in nearly all industries around the world. All countries have debt, large corporations have debt, and even the rich and famous have debt. There's nothing wrong with having debt. It's unmanageable debt that you need to be concerned about. And it's unmanageable debt that leads to feelings of frustration, powerlessness and fear - what an unhealthy way to live. But don't fall into the trap of pretending the debt doesn't exist. Denying that you have debt doesn't help you - indeed, being in denial might only make your situation worse! Having a 'head in the sand' mentality about your debt doesn't make it go away. But you don't have to feel bad about it either.
Feeling bad about your debt often makes you avoid dealing with it - and guess what, avoiding doing something about the debt leads to making you feel bad! It is really is a 'Catch 22' situation. This is the reason that Debt Consolidation can be such a life changing phenomenon. It allows you to make that debt manageable and put you back in control. Being proactive and having a positive approach to your debt is the first step to controlling it and feeling good... a much more rewarding way to live!
6. Avoid 'Predatory Lending' by going with a reputable Debt Consolidation Company.
'Predatory Lending' is a somewhat pejorative term used to describe the unethical practices of some lenders. This type of lending is more likely to occur on loans backed by some kind of collateral, such as a car or house. Basically, if the borrower defaults on the loan, the lender can repossess the property, sell it and make a profit that way. Some unethical lenders will offer a consumer with high interest debt balances the option of refinancing their property but will charge excruciatingly high Debt Consolidation Loan set up fees and administration costs. Sometimes these fees are near the state maximum for mortgage fees! And even worse, some unscrupulous companies will wait until a client is desperate to refinance in order to pay off debts that they are behind on, and because the client is fearful of losing their house or property they will pay the overblown fee to get the Debt Consolidation.
Fortunately, these cases are rare, and if you go with a reputable Debt Consolidation Company you can be sure you'll be well looked after.
7. If you commit to a budget, Debt Consolidation can be your path to freedom from debt.
Folding all your loans into one when you're stretched can help you achieve that longed for "nil balance" against your cards and debts. But be warned: if you don't change the spending habits that put you in debt in the first place, then you'll be back in the same position again in the near future... If you don't commit to disciplined spending habits, Debt Consolidation will really only be like applying a bandaid to a haemorrhage.
To follow your path to being debt-free you need to stick to your budget, spend less, and put your credit cards in a place far, far from your reach. A smart move, if you have bills coming in, is to use a debit card instead of a credit card. A debit card has all the convenience of a credit card minus the future debt headache.
It is possible to make your debt manageable when you're Debt Consolidation Wise.
To save time and money finding the right Debt Consolidation Loan for you please visit our Debt Consolidation Enquires page.