The Benefits and Pitfalls of Debt Consolidation

By: Derek Smiley

As everyone knows, it's not hard to get into debt. All it really takes is one emergency or one forgotten payment. The issue is, once you get in, it can be hard to get out! Debt consolidation in the UK and worldwide offers a quick solution to getting out of a financial mess, but there are a few things that you need to consider to make sure that this avenue is right for you.

The main appeal of consolidating your debt is that it offers you one large solution to your problems. Between student loans, credit card bills and other areas where you might have accrued debt, it can seem like a maze with no escape and you might be beguiled by the chance to simply make one payment every month, rather than deal with different and always rising interest rates and multiple payments.

Beware of debt consolidation offers that give you a straight loan of however much you need to pay off your debts. You could be getting into even worse debt than you were before, and your credit history could suffer as well. With one supposedly easy loan, you could end up paying off a larger loan at interest rates of up to twenty five percent! Be sure to read the fine print, but typically, this type of debt relief is to be looked at with a certain amount of suspicion. Always check and compare mortgage loan offers.

One reason that you might be interested in debt consolidation in the UK is that it offers a lower interest rate. Keep in mind that you should be careful about this, and make sure that you are not mistaking the introductory interest rate for the permanent one. However, this can work in your favor however, if the interest rate of the loan mortgage offer is less than that of your debts.

To decide if debt consolidation is right for you, you will definitely need to do some number crunching. The first thing is to figure out how long it will take you to pay your debts off at the rate you are going. Then take a serious look at what the debt consolidation company is offering and see if their rates and offers will give you a better time frame.

While you're at this stage, you should consider what monthly payments you make and what your budget is like. In any case, the larger your monthly payment is, the sooner you'll be out of debt and the less you will pay over time, given the amount of the interest. Also think about what your future situation will look like. Are you getting married soon, or planning to have children? This can all change your financial outlook significantly.

When considering debt consolidation in the UK, do not do it if the only appeal is a simple, one payment solution. It is almost never that simple, and you could end up in a worse situation than the one that you are trying to get out of. Simply be aware of what your financial state is like and make sure that you know where you money is going!

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