As more and more UK residents face the growing problem of making ends meet month to month, people are turning to debt consolidation companies for assistance. Debt consolidation refers to taking out one large loan to pay off several smaller ones. The benefit to this approach is that it can allow borrowers to pay off their debt over a longer period of time, meaning smaller monthly payments and more cash in hand for essentials. If someone has overextended themselves, debt consolidation can be a viable option, quickly turning the chaos of multiple creditors vying for attention into one lower monthly payment.
Individuals who are contemplating debt consolidation are encouraged to speak with a credit counselor before making any decisions. This suggestion comes in part because in recent years, more people have been tempted to roll several unsecure debts into one large secured debt, with the collateral normally being their home. Secured debts are loans where some type of collateral has been used, normally a house or a car.
Unsecured debts are loans that were not entered into using any type of collateral except a promise to pay the loan back at a predetermined rate of interest. The worry is that if the overspending continues, people who were previously only dealing with a multitude of bills will now face the possibility of losing their home.
Tools such as this debt consolidation calculator can be helpful in deciding whether a consolidation loan is the right decision: http://www.theguardian.com/money/debt-consolidation-calculator-save-money.
Debt consolidation can be a smart choice for borrowers who have multiple loans and credit cards to pay back all at the same time. It can also be a great tool to help someone manage multiple payments with competing due dates and interest rates. By rolling all of the smaller loans and bills into one monthly payment, the entire situation is streamlined and simplified. However, if the issue is deeper than simple mismanagement then a debt consolidation loan is rarely going to be the answer. Historically, if someone has a debt problem, consolidating the debts will only allow the person to begin to rebuild debt with a clean credit rating. Many counselors offer this sage advice: once you’ve cleared the debt, cut up your credit cards!
Debt management companies can be a good option for those who need some help navigating the consolidation process. Debt management companies will negotiate payment schedules with the original creditors and manage repayment on behalf of their customers. These companies will take a close look at the individual’s financial situation and draw up a debt management program, which includes a schedule of payments to all creditors. After conversations with all creditors, debt management companies are usually successful in reducing the fees and interest, so that the final figure owing is manageable. The individual then supplies one simple monthly payment to the debt management company, which disburses the individual monthly payments to creditors.
Seniors in particular are susceptible to the troubles that come along with debt consolidation. Once someone is on a fixed income it makes any hope of paying off multiple debts nigh onto impossible. At this point they should be considering a consumer proposal or bankruptcy, as these options will successfully prevent them from simply starting the process over and recreating the chaos.
There are several companies offering debt consolidation loans and debt management programs in the UK – a simple Google search will turn up a multitude of choices. If you’re considering a debt consolidation loan and you’ve determined that it’s the best course of action for your particular situation, shop around and compare to find yourself the best rate – and be sure to include the possibility of securing the services of a debt management company.