Thursday, January 18, 2018

What Is Debt Consolidation?

If you are in a spot of financial trouble this year, you might have looked at the different
options you have for paying back your debts and getting back on track financially. Debt
consolidation is a type of debt management which allows you to recuse the debt from a
mountain to a manageable monthly payment.

Before you jump straight into the world of debt consolidation though, let’s learn a little bit
more about it and what it means for you.

A debt consolidation loan or bill consolidation will essentially pay off all of your existing debt
for you, and then you will end up with a loan which is consolidated into a manageable monthly
payment. You will still need to pay back any money you owe, however, it will allow you to pay
the amount back in smaller amounts and also with a lower interest rate, making it much
easier for you to do it.

The Benefits

There are many different benefits to going down this route of paying back your debts:
Reducing your monthly payments – when you take out a consolidation loan, you will stretch
out the deadline for payment and because of this, your money outgoings will be less than
they were before. This means that you will be able to manage the payments with much
more ease than you did before and be more likely to pay the full amount back
Improving your credit rating – by changing the way you are paying off your debt, you are
more likely to pay off the loan. If you manage to do this you will gain points on your credit
rating as you will no longer have the debt hanging over you and dragging you down.
Reduced interest to pay – you will generally always pay back a lower interest rate than
you did before when you switch to a consolidation loan.

The Risks

As with any form of loan you take out, there will always be a certain aspect of risk involved:

Long period of debt- due to the fact that a consolidation loan stretched out your payments,
you might end up being in debt for much longer than you would ideally want.

How will you get one?

The first step to being able to get a consolidation loan is the company assessing whether
or not you are eligible. Like any other loan company they will look at your credit risk to see
if they want to lend you the money.

If you have a bad history of credit, the lender may ask you to take out a secured loan. This
means you will be putting your home against the loan as security to reduce the risk to the
lender of you not paying back your debts.

There will be several factors a lender will look at when deciding to give you a loan:
credit history
Amount you want to borrow
The length of time you need

How likely you are to fully repay the debt you owe

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