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Debt Consolidation
Is It Really the Best Option For You?
by Roy Thomsitt
It is a very common question that people pose to themselves across the
English speaking world: should I consolidate my outstanding debt? There is no
single answer to this question, as no two people have identical finances and
other personal circumstances. There are also other factors that come into play
that can affect the right or wrong of your decision.
In deciding whether to opt for debt consolidation you should take into account
the following:
Financial Savings
Being able to save money is, or should be, an important factor in deciding
whether to take out a debt consolidation loan. Typically, people who are
considering consolidation will have multiple debts which include one or more
with high interest rates. This particularly happens when loans are taken out
during a period when market interest rates are high. The borrower sees cheaper
loans advertised when the market rates decline, but the rates of his loans are
fixed at a high level; it is therefore an immediate temptation to switch to one
cheaper rate loan and to make interest charges and monthly payments cheaper.
Another type of debt that will bear a high interest rate is credit card debt. It
can be attractive to consolidate such debt with any other loans, so that they
can be paid off in one monthly payment at a lower level than the current loans
added together.
The lower monthly payments give the impression that you are making savings when
opting for debt consolidation. However, that apparent saving may be due to a
longer term of loan. You do need to make sure you are actually making a saving.
You can do this by checking the total annual interest charges for your existing
debts, and compare them with what they would be under a new consolidation loan.
Only by reducing your interest charges will you be making a true financial
saving.
When calculating any saving, be sure to take into account any charges made by
the new lender, and any penalties you may suffer through paying off other loans
early. Such costs can be critical in deciding whether there are any financial
savings.
Improving Your Cash Flow With Debt Consolidation
Debt consolidation can bring great relief to your monthly cash flow, if done
properly. So, whether it is personal debt or business debt that you are
consolidating, you are given an opportunity to put your finances in better
order.
Reducing Stress When You Consolidate Debt
Your level of stress can increase steadily if your finances are in poor order,
and each month you find it more difficult to meet loan and credit card
repayments on time. If you consolidate your debt you should be able to get the
monthly repayment to a more affordable level, thus reducing the potential for
stress as you struggle to make a lot of monthly repayments. You may also avoid
the hassle of creditors chasing you, by preventing yourself from falling behind
with payments.
The Affect On Your Credit Report If You Consolidate Debt
The precise affect on your credit report or status when you consolidate debt
will depend on your location. Your new consolidation loan will be recorded, but
so long as you maintain your payments, on time, for the duration of the loan,
then you should emerge at the other end with a decent credit standing. However,
deciding not to consolidate debt may adversely affect your credit status if you
subsequently default on any of your loans or credit cards.
The above are just some of the factors that should be taken into account in a
decision to take out a consolidation loan, and it is wise to consider everything
fully before deciding. If you decide to go ahead, then shop around for the best
deal. That will help you for many years to come.
Roy Thomsitt is owner and part author of
http://www.eliminate-credit-card-debt-now.com
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