Nowadays, it is easier than ever before to fall into a debt-trap what with the easy… availability of credit through personal loans and credit cards, and also a thousand different ways to spend. Consumer debt has exploded in this country, and every year many people find themselves getting perilously close to bankruptcy.

As the debt balance increases, so does the interest amount. Late fees, missed payment penalties etc. add to the existing debt exacerbating the situation and very soon you may be receiving intimidating phone calls from debt collectors.

Debt consolidation is a great debt help option to get your finances back on track. Consolidating your debts means that you are replacing several of your loans with a single loan or another type of debt consolidation management plan.

What exactly is debt consolidation?

Suppose you are paying off 5 credit cards, a personal loan and a home loan in addition to the utility bills. This means that you have 7 monthly payments to make plus the utility bills. Debt consolidation helps combine all or most of these monthly payments into a single loan or debt consolidation product, with lower monthly installments and a higher term for repayment. The immediate benefit is that it takes the edge off your monthly financial burden by reducing a significant portion of the repayment amount.

Consider for example that you have debts totaling $25000 and the minimum repayment amount totals to $700 per month. Through debt consolidation, your monthly repayment amount may drop to somewhere around $450 which in itself means an immediate relief of $250 per month.

Also keep in mind that debt consolidation may include non-loan type debt consolidation products.

Advantages of Debt consolidation:

Ӣ If you have a good credit rating, debt consolidation companies may offer you a loan.

Ӣ Immediate benefit because of reduced monthly outflow of cash.

”¢ Some debt consolidation companies will speak to your creditors, so you don’t have to worry about dealing with debt collectors.

Ӣ The new loan may have a higher repayment term.

Ӣ Debt consolidation turns the disorganized multiple monthly payments into something more manageable.

Many banks, credit unions and other financial institutions offer debt consolidation services. If you have the ability to secure the loan using collateral such as home or other assets, you may get a very competitive interest rate.

But if you are considering a debt consolidation service, the interest rate is something that you must carefully consider. There is no standard rate that companies charge to consolidate your debt, it depends of a host of factors that are considered on a case-by-case basis. Verify that the interest rate charged by the debt consolidation company results in a lower payment, else it may not make much sense to take that route. Make sure that the repayments are well within the range that you can afford.

Once the consolidation loan or debt consolidation plan eases a bit of your financial woes, be careful not to slip back into old habits that got you here in the first place. You do not want to end up in a situation where you have to pay up the consolidated loan plus your new credit card purchases. If you are unable to resist the temptation to swipe plastic, cancel the credit cards at least till you set the house in order. For purchases that can be made only through credit cards, use a debit card instead.

The simplest, and often overlooked, way to create wealth and to have a manageable financial situation is to spend less than you earn. If you are able to limit your monthly outflow of cash to lesser than what you bring in, within a few years or even months, your finances will be in much better shape.

There are good debt consolidation companies that will not only provide you the solution to get rid of your existing debt by converting it into more manageable portions per month, but they will also advise you on how to re-establish your credit file.

Debt consolidation will not wipe out your debt. It will only give you more time and easier repayment installments. Remember that the longer you keep paying, even though the amount may be smaller, the higher you will end up paying in interest charges. Try and pay more than the minimum monthly amount for the consolidation loan and also focus on clearing the higher interest loans first.

There is no quick-fix solution for a better financial position, remember that you need to work towards it for a significant length of time.

Still struggling with Debt?…  Talk more about Debt Consolidation with one of our expert staff on 1300 332 834.