A Personal Finance Guide

Is debt consolidation the best debt solution?

We’ve all seen the adverts – the ones that claim by consolidating your debts you’ll be able to overcome your financial complications quickly and easily, and that they are the debt solution of choice for most people in large amounts of debt. Debt consolidation is no doubt a popular choice, but it’s important to know the full facts on any of the best debt solutions before rushing in to anything.

Debt consolidation is seen as an attractive solution to debt as it reduces your multiple debt repayments into one monthly payment. If you’re paying back multiple creditors, at different times of the month, it can be difficult to maintain control over your finances, particularly if those payment dates occur before payday. Many people who find it difficult to keep track of, and manage, their finances, find a one off payment each month a desirable option.

It’s important to remember, however, that debt consolidation is a loan – and the interest rates on these types of loan aren’t always favourable. If you’re looking in to this type of loan, you may already have a poor credit rating, which will push interest rates higher. Furthermore, you might find that the loan is borrowed over a longer period of time than the individual payments. This will mean you will pay interest over a longer period of time.

Another factor that might make this debt solution unattractive is the fact these loans are secured against your home. Most credit card and personal loans are not, so by bringing these debts against your home, you run risk of losing your home if you can’t keep up your repayments.

Finally, it’s important to note that these loans will negatively affect your credit score, which many people aren’t aware of. This highlights the importance of researching all the options available before committing to one debt solution.