What is Debt Consolidation?

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What is Debt Consolidation?
At some point in life it is possible to find yourself caught up under a debt burden that is way beyond what you can manage. The options available in dealing with this situation range from filing for bankruptcy, selling off assets to pay back some or all the debt, debt consolidation among others. Some options are not very viable especially when their long term consequences are considered. Filing for bankruptcy is an example of an option that should only be considered when all else has been tried and failed. This is because it will affect your financial future in a very significant way. Debt consolidation offers a reasonable and practical way out of this situation.

Bad debt is one of those things that have a tendency of quickly multiply in a short span of time. Bad financial decisions tend to have a spiral effect and this eventually leads to a situation where one owes more than they can pay and in many cases to multiple creditors. In order to manage payments easily and also for purposes of reducing the interest paid to the creditors, debt consolidation is an ideal solution. The processes involves getting a financier who will pay up what you currently owe to the many different parties and leave you with only one loan to pay. Taking up debt consolidation does not take away any of the debt that you owe but instead reduces the stress involved in dealing with multiple lenders. In many cases it also affords you a fixed interest that is lower than the combined rates of the different creditors.

Most financial institutions that offer debt consolidation will require some security or collateral in order to accept your request for the facility. In many cases, this means that you will give up several unsecured loans and take up one secured loan. Even though the secured loan will come at a lower rate and afford you easier repayment, it is important to ensure that you manage your payments well in order to avoid losing your asset. Debt consolidation therefore requires self discipline and control so as to manage the repayments and ensure that your asset returns to you as soon as possible.

Debt consolidation facilities will usually be spread over a longer period so as to allow for easier repayment. It would however be in your best interest to negotiate with your lender for a reduced payment period once your finances are better. A popular option for debt consolidation is the home mortgage loan. Financial institutions tend to prefer this kind of debt consolidation loan as it is against a good value asset. It also works well for many clients who find that they end up paying about half the rate they were previously paying for the unsecured loans they had. Before you commit to any major financial undertaking, it is advisable to consult someone with expertise in debt management so that they can asses and advice you on the best solution for your particular situation.

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