Debt Consolidation: What It Means And When You Need It

Debt consolidation can be a great help if used wisely, but a big problem when used incorrectly. Nonetheless, a debt consolidation loan can really help anyone in need of sorting out their finances. We will discuss the benefits of a consolidation loan below and when you may need to make use of one. Read on to see if it is time to make use of a debt consolidation loan.

What Is Debt Consolidation?

Debt consolidation is a loan taken out to pay for numerous other debts. Although it sounds odd, getting out of debt by creating more debt in the sense of a loan, debt consolidation loans can actually do a lot of good for a person. Taking us to our next point.

Who Can Benefit From A Debt Consolidation Loan And When Do You Need One?

Consolidation loans are generally for people who have a good hold on their finances usually but found themselves in a situation in which they need immediate funds. Unfortunately, one cannot always plan ahead for financial needs that could arise. Picture this; your child gets horribly ill and you need to rush them to the hospital. Your car breaks down and you’re forced to fork out funding for immediate repairs your warranty won’t cover you for. A freak thunderstorm wreaks havoc on your home, leaving a substantial hole in your roof. And this all goes down in the course of one week. By this point, you will have potentially maxed out every credit card you have to pay for all the expenses. This is where a debt consolidation loan comes in. You would take this out to pay off multiple debts in one place, making them easier to manage. Remember, however, a consolidation loan is a means to take you out of debt; not give you a bigger spending opportunity.

The Benefits Of A Consolidation Loan

There are a number of benefits to taking out a consolidation loan. We will discuss these below:

  • Ease: one of the biggest benefits of taking out a debt consolidation loan is that it makes things easier. Instead of falling over your finances, trying to keep track of various debts going off monthly, they will now all fall under one, comfortable umbrella. This will ensure you never miss a payment or mess up your monthly budget.
  • Lower Instalments: debt consolidation can actually lower your monthly instalments. By grouping all of your repayments under one umbrella, you are dealing with one interest rate. This could potentially bring your monthly spend down in terms of repayments.
  • Affordability: consolidation loans also offer a person the ability to choose a financial repayment system that suits them. Unlike a credit card or store account, you will be able to discuss an agreeable term and repayment amount. But keep in mind, by making your term longer, you will essentially be paying off more interest than paying higher monthly amounts for a shorter period.

Things To Be Aware Of

There are a lot of sharks in finance. Therefore, you need to be careful of who you choose to take your consolidation loan out with. Some creditors will threaten you with negative credit ratings should you default on a payment. Look out for the following tell-tale signs that a creditor is no good:

  • Their offer is too good to be true: if a debt consolidation offer sounds too good to be true, it is. Make sure you read through every detail you can – fine print included – to make sure you don’t get yourself into more financial trouble than you originally were in before.
  • Ask if you don’t understand: many debt consolidation sharks prey on victims through complicated, unnecessary terms. They throw around big words hoping the reader won’t understand. And more often than not, people don’t, but still sign on the dotted line. Do not do this! If you don’t understand a clause in their contract, ask about it, as this is where they will catch you.
  • They offer you a loan based on your bad credit score: if a debt consolidation company is willing to offer you a loan, even though your credit rating is abysmal, the red lights should be going off. This means trouble for you in the long run.

Curious About Consolidation?

If this page has piqued your interest, and you are keen on finding out more about debt consolidation, get in touch with National Debt Advisors now. We will offer you all the help you need relating to the topic of a consolidation loan, as well as other areas of debt management. Get in touch with us today to see just how we can help you.