When is Debt Consolidation a Good Idea?

Sometimes debt consolidation is a good idea. The case when it is involves an understanding of the interest rates the various debts are currently assessed at, and computing how much will be saved by consolidating the debt at a lower interest rate and making the highest monthly payment you can afford against the combined debt.

Working with a debt counselor on these sorts of problems can often be a good idea because they will have the calculators or spreadsheets handy to show you how you can save money by doing so.

Factors to take into account are how long you plan on carrying the consolidated loan vs. the time it would have taken to pay off the loans individually, what rates of interest are involved, hidden costs involved for missed or late payments, and finally what is the highest payment you can afford on the consolidated amount? A good debt management plan can go a long way toward helping you manage your money.

Sometimes consolidated debts, and credit card balances too, are financed through remortgage. While not the ideal, this will provide a good solution to clearing existing debt using the house as collateral. Un-collateralized debt loans, for un-collateralized debt, really are more suited, but may not be possible. It is better if you don't have a bad credit or growing debt obligation but even in those circumstances, debt counselors and bankers will try help get you back on track. If you have been refused loans from a bank to clear debt, it is time to seek advice, come up with a debt management plan, or an Individual Voluntary Arrangement (IVA).

Debt consolidation is at its best in the period before it really becomes needed, so if you are in that position, this may be a good time to take advantage of service that provides this kind of product. There are now many national debt advisory services available on the internet which have great websites.

Author: Laura Brown


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