Are Consolidation Loans a Good Debt Management Tool?

By: David Lynes

Being in debt can be stressful at the best of times, but when you have a number of debts - many of which may be high interest debts - both management and affordability may become a problem. If you have a range of debts, such as small loans, overdrafts, credit cards, store cards, etc. you may find that managing your finances can be difficult. You may also find that your monthly outgoings are very high as a result of your combined debts, and this can lead to financial problems and increase the chances of missed and late repayments, which an ultimately affect your credit.

One of the solutions available to ease both affordability and management of your debts is a consolidation loan. Many people have used Consolidation loans to wrap up their existing credit, and have found it easier to manage their money and their debts, as well as enjoying a reduction in monthly outgoings. With these you can pay off all of your smaller debts (subject to the amount that you owe and the amount that you are able to borrow by way of a consolidation loan) and take on just one loan instead.

Consolidation loans can prove to be very effective as a debt management tool if you exercise responsibility - however, there are dangers involved in consolidating your debts, namely the fact that you then have other lines of credit available to you again and unless you exercise willpower you could find that your debts spiral quickly out of control. For example, if you take one out to pay off the balances on a number of credit cards you will then have available credit on your cards again. It is all too easy to rack up debt on the credit cards again, leaving you with the original debts to deal with in addition to the consolidation loan.

In order to truly benefit from a consolidation loan you need to make sure that you exercise self control once your debts have been paid through the consolidation loan. It is a good idea to actually close down store card and credit card accounts after you have paid off the balances, as this will make it more difficult to run up further debt. Many borrowers do decide to keep one low credit limit card on hand for emergencies. If you are able to keep a close eye on your finances after consolidation, and you resist the temptation to run up the original debts again, you will find that a consolidation loan could prove a very effective way to ease your financial problems and manage your

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