Debt Consolidation

Debt consolidation is an increasingly popular way of handling your commitments to creditors. It’s often used by debt management consultants to simplify the whole repayment process. Essentially it allows you to take all of your existing debts: store cards, debit cards and credit cards included, and combine them into one, single easy to pay, monthly fee.

Of course debts come in many shapes and sizes; and debt consolidation is best employed in dealing with several little or medium sized debts. The more debts you have, the more difficult it is to keep up to date with the payments, let alone what you’re paying to whom! If you’re in debt to multiple creditors you can think of yourself as a plate spinner; trying desperately to keep all of your plates spinning. The fewer plates you have, the easier it gets. So debt consolidation is a way of removing plates, letting you devote all of your attention to keeping your best bone china from crashing to the floor!Even though it’s an essentially simple process, debt consolidation, like most ameliorative debt strategies isn’t without its detractors. But then, debt consolidation is generally misunderstood! So, let’s explore, and explode a fundamental misconception:

Some advisors will try to tell you that a debt consolidation is just another name for another loan; flap their arms about and warn you off! If anyone tells you this, they’re not wrong, (strictly speaking,) they’ve just fallen into an old trap that says debt consolidation loans are available; therefore all debt consolidations are loans. It’s like saying this elephant is pink; therefore all elephants are pink! It’s simply not true. Debt consolidation loans are just one of the debt consolidation packages available to you, but that’s all. Loans also have their detractors and should probably be avoided if you’re in any doubt as to how to handle them.

However, the aim of this site is to give unprejudiced advice, so while we don’t discount loans as an option, we may suggest that they’re not suitable for all. Essentially, you’ll be offered a new loan, sufficient to pay off your existing debts, leaving you with a single loan re-payment in its place; which is the major inducement for most. Other advantages might be that the loan is secured at a lower rate, meaning you’ll pay less, month on month; or that it’s a fixed rate, meaning that you can budget for it more easily. (The caveat is that you’ll be tied in for a longer period meaning you may end up paying more in the long term.)

By contrast, a debt management style debt consolidation package works quite differently to achieve the same end. You’ll still end up paying one combined payment, but you won’t need to take out a loan. Instead, your debt consolidation advisor will negotiate with your creditors, with the intention of freezing interest and reducing repayments on your debts. Thereafter they take care of your debts. You pay an agreed monthly sum to the debt consolidators and they make appropriate restoration to your original creditors.

If you decide you’re going to use this type of service, you’ll need to establish from the outset what it’s going to cost – if anything. Some debt consolidation packages are free; funded by creditor’s commission. (By and large, creditors are so happy to recover their losses that they’re willing to pay for the privilege.) But other services will include a fee, included in your monthly repayment, which covers the administrative costs and negotiations with your creditors.

Debt consolidation isn’t for everyone; but that doesn’t mean it’s not for you. Enter into it knowingly and it can revolutionize your approach to debt repayment. It doesn’t matter if its detractors dismiss it out of hand; if you’ve got multiple debts, you might just find it’s the solution you’ve been waiting for...