If you find yourself in a position where you are really struggling to make the monthly payments on a variety of loans and credit cards, debt consolidation might be the answer to the problem, but it is not a simple fix, and you need to do so with great caution. By consolidating your debts, you are effectively taking out one loan, with an overall lower interest rate than you are currently paying, to clear all of your outstanding debts. Credit cards tend to have much higher rates than standard loans, so reducing the interest you are paying, should reduce your monthly outgoings on debt repayment. However, while it can simplify matters, you first need to understand how you got into this position in the first place, and use great caution in how and with whom you organised the new loan.
The Cause of the Problem
It normally takes people a while before they realize that they have racked up more debt than they can comfortably repay, and simply switching from a series of payments, to a single, albeit slightly lower one, is not the end of the problem. To be in debt, means that you have been spending beyond your means and this needs to stop, or the consolidation is not going to work. You need to take a close look at all of your outgoings, to see exactly where your money has been going, to identify where you have been overspending, and set a firm budget that you have funds for and stick to it rigidly.
Lose the Cards
When you have been unable to use your credit cards because they were maxed out, and suddenly they are clear again, it can be tempting to start to use them once more, but this is exactly how the problem started in the first place. Cut up or cancel most of them, keeping perhaps one, with a fairly low limit, and keep it for absolute emergencies only. Remember that the interest on credit cards is generally pretty high and you won’t reduce your debt if you continue to build it up.
It really pays to do your research and not simply go for the first offer of a consolidation loan. You need to do your homework, evaluate a variety of options, assessing fees, interest rates and monthly repayment rates, or you could find yourself even more burdened than you were in the first place. There are several firms that provide debt consolidation loans with bad credit. When choosing, beware of firms that pressure you into taking an agreement, and ensure that all fees are clearly visible and in writing, as there are many predators in the market, who are out to help themselves and do not care about you at all.
Evaluate Your Options
Debt consolidation may be a good option for some people, though it is not necessarily the best one for everybody. Other possible solutions are debt management whereby you consolidate your unsecured debt through a single affordable monthly payment or bankruptcy, though this is normally the last option. Debt counselling is also something you really should consider, to ensure you are saying goodbye to your financial problems for good.