If you’re trying to sort out a bad debt problem and thinking of debt consolidation then you need to know exactly what those debts are. If you owe money for a car loan, an overdraft, a couple of credit cards and a store card, you probably have some bad debt. No wonder it’s been hard work keeping track of your spending. Debt consolidation then becomes very important consideration.
One option is to consolidate all the debts by borrowing a lump sum to pay off all the individual debts, so that you-ve only got one payment to make each month. It may seem a bit unfoolish to suggest trying to get a personal loan when you-re already in it up to your eyeballs but as long as you realise that what you-re actually doing is getting a replacement debt, then it can make sense.
Debt consolidations loans can usually be secured at a much lower interest rate then what you are currently paying for your credit cards and other bad debt loans. Just remember that they are only as good as your discipline. Pay the bad debts of with the debt consolidaion loan and then cut the cards and implement good spending habits.
Most of the studies on debt consolidation loans indicate that 80% of the people getting these debt loans go on to rack up more bad debt with their credit cards. Work at being the other 20% by using the debt consolidation loan to pay off the cards and then become frugal. Only spend your money on your needs not your wants.
A consolidation loan may well help you manage your money better but until it-s paid off, you won-t be out of the woods.There are a number of things to look out for when looking for a consolidation loan. The interest rate is obviously the most important – it should be the lowest you can find. But don-t borrow more than you need. Many lenders will offer lower rates if you borrow more but don-t fall into the trap.
You might think it would be good to have a nice holiday after getting all those different creditors off your back but remember you will still have to pay it back – and with interest too.If possible it should also be flexible so that you can pay off more than the required amount if you suddenly find you can afford to increase the repayments. Many loans incur penalties if you pay them off early – and quite a lot of people do – so a flexible loan is best.Such loans can also be secured or unsecured. Think long and hard about taking out the former as the loan will be secured against your house so, if you default, you could lose your home.
By securing a debt consolidation loan, you will be paying a lower interest rate. But the bank will want some reassurance if you get sick or be in a position to not pay it back and ask you to get insurance to secure the loan. This is not a requirment only a suggestion so be careful. Most of these insurance are over priced and not really needed. Check your life insurance policy and make sue your limits will cover the loan if you die. This is probably all you need.
You may prefer to pay for what insurers like to describe as -peace of mind- but just remember that it-s their peace of mind you-re paying for!Also, try to spread the loan repayments over as short a period as possible. The longer it takes to pay off, the more you-ll pay in interest and the less motivated you will be to stay out of further debt. The important thing is to make sure that you can comfortably make the payments.
The last thing to remember is to shop around. Don’t settle for any loan. Make sure you feel comfortable with the lender, the rate is what you want and the terms of the loan is something you can live with. This is a very imporant decision and must not be cecided immediatley.
