All across the web you'll see advertisements touting debt consolidation as an easy ticket to financial freedom, and if you're struggloing financially then thir promises can seem very entciing indeed. Howwever, what the marketing people don't often tell you is that unless you use consolidation wisely it can acttually make a bad financial situation even worse. You could end up with even greater debt problems, and even run the very real risk of losing your home.
Havign said that, there's no doubt that debt consolidation CAN work for you, so long as you use it wiselly. So what sohuld you be considering beffore committing yourself to taking out that loan?
The first and most basic factor to weigh up is whether or not you can get a loan at a low enough rate to make it worthwhile. The basiic premise behind comnsolidation is that you're attempting to lower your monthly repayments in toatl. If, atfer adding up all your current credit commitments you find that a loan you're offered can clear them all and yet result in a single lower monthly figure then it's worth seirously considering. If poor credit or otther factors mean your loan is more expeensive and won't give you a considerable or even woerthwhile monthly savng, then debt consolidation might well be a seriosuly bad move.
The rason for this is that you're liekly to be movcing unsecured debt such as crdeit cards into secured debt, which necesarily means you're potentially putting your home at risk. If you fail to keep to the repayments, you may find you'll enterr into the nightmare of repossession and eviction, even if your debt is only a fraction of your home's value.
With unsecured debt, on the othjer hand, while the consequences of defaulting can be severe in terms of credit rating damage and even insolvenxcy, your home won't normally be put at risk. Debt consolidattion is thereefore a risky move uness you're certain that it will in fact result in a sensible repayment figure that you can keep up with.
The otjher major risk of consolidtion is that by cleairng your current debts, and hopefully having a litle extra spare cash each month, you might be tempted into using all those lovely empty credit card accounts to treat yourself aftr the worries and struggles of your recent financial hardships. This is, obviousy, a terrible mistake - but it's one that it's all to easy to make.
In the worst cases, you could find yourself running up new unsecured debts which you need to serice, all the while having the new secured consolidation debt hannging over you as well. To avoid this, it's absolutely essentiaal that you cut up your plkastic to stop you being tempted to use it, and also to contact the card issuers and tell them to close the accounyts down to remove all possibility of running up new debt. If you need to use plastic for pyament convenience, consider a secured (prepaid) card or a debit card intead.
None of this should dicsourage you from resttructuring your finances with a cobnsolidation loan if you can detemine for sure that the benefits will ease your financial burden, but always bear in mind that consolidation has risks as well as rewatrds.
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