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The Truth About Debt Consolidation (Getting Out of Debt)

Are you drowning in debt and loan investments? Or failing to settle your credit card payment? Don’t let your money problem cause you frustration. You can be relieved with a loan or without taking a loan. Basically, it cuts costs by decreasing the interest rate and also reducing the monthly payments. Debt consolidation basically is a form of debt refinancing that involves taking out one loan in order to pay off many others. This refers to a personal finance process of individuals addressing the high consumers. But occasionally it refers to the fiscal approach of a country to Government debt or corporate debt.

Debt Consolidation: A Quick Overview

Debt consolidation, as the name suggests, is the consolidation of one’s debts under a single repayment plan. Moreover, it is the combination of several different unsecured debts into a single monthly bill and these can be things like your credit cards, or your medical bills might be your store cards, gas cards, etc. Any borrowed money basically that’s unsecured which means that you borrowed it without being attached to collateral. So this is your excluding things like your automobile vehicle or your mortgage.

Therefore, if you take up a debt consolidation plan from a bank, the bank pays off your creditors and you will own money to that one bank with an internet rate that is lower compared to many sources of credits. A debt consolidation plan can make paying off one’s debt less of a burden.

It is also easier to keep an eye on one’s monthly repayment versus the multiple ones. Do note that taking up a debt consolidation plan will end your access to unsecured credits from your former creditors until your debt is greatly reduced. However, some banks might offer you a credit card with your debt consolidation plan, which you can choose to use. This credit card will usually have a credit limit only up to one times your monthly income.

Who can Qualify for Debt Consolidation?

To qualify for debt consolidation, you need to fulfill the following conditions,

  • You should be a citizen of your country.
  • The minimum age should be 25 years and the maximum age is 58 years.
  • The minimum salary should be approx 37,000 per month.

What Debts can be Managed with Debt Consolidation?

Debt consolidation can only be done for credit card debts and selected unsecured loans. Education loans, renovation loans, medical loans, and credit facilities granted for businesses or business purposes cannot be settled with a debt consolidation plan. Car loans and home loans are secured loans and therefore, cannot be managed with debt consolidation.

How Does Debt Consolidation work?

Digging yourself out of credit card debt can be hard unless you have a plan. Typically the debt management program decreases the interest rates of yours. So, you can pay your debt much faster. One can even pay bills more conveniently with just one monthly payment. This even gives you a bigger shovel to dig yourself out of debt faster and easier. A debt management program can help you to find savings, lower interest rates and build a roadmap to future financial health. 

Debt Consolidation Calculator

The purpose of the debt consolidation calculator is to calculate the benefits to your clients of consolidating their mortgages and other loans. You can access it from the home screen under the calculator menu or alternatively from the assets and liabilities screen. Apart from that, it will allow you to preview your client’s mortgages and loans again and it also allows you to bring in that information that you have already entered into the debt consolidation calculator. It will then give you a choice of what liabilities you are including.

Debt Consolidation with a Loan

The process of opting for consolidating debt is conventional. You can get a loan from the bank or an online lender. Just remember that the amount of loan should be enough in order to eliminate all the unsecured debt at one time. Therefore, repay the installments every month at an interest rate that you have consulted with the moneylender or banker. Most of the time the repayment time around 3 to 5 years. But the key element is how much you are charged as an interest. So, if the interest rate that you are paying for the debt consolidating loan is not lower than the actual interest rate, then there is no use of borrowing loans through debt consolidation.

Debt Consolidation without a Loan

Without taking another loan, it is also possible that you can consolidate the debt and reduce the monthly payments. Most of the credit counseling companies allow nonprofitable debt consolidation by giving a debt management program.

Pros and Cons of Debt Consolidation

Now, comes the pros and cons of debt consolidation. Typically debt consolidation for most of us is understood to be a loan. Often, people might consider using a balance transfer as a form of debt consolidation as well. Loans you might get from your bank, a personal loan, or peer to peer loan or even a home equity line of credits. The primary purpose of consolidating your debt is to lower your interest rates. The most common example would be, you owe a bunch of money on a bunch of credit cards. Then, you get one loan to pay them off. There is a bunch of benefits for doing that.

The first one is, you have one monthly payment instead of many. So, it makes it a lot easier to budget and if you qualify at a lower interest rate. Now, you can end up with a lower monthly payment. Obviously that’s a lot better for your cash flow and with a lower interest rate. You can then make the same type of payments and shorten the length of the loan. So, your repayment term is a lot shorter that saves you a lot of money. By getting a consolidation loan there’s very minimal impact on your credit report and it might actually make your credit score go up.

The disadvantages of debt consolidation are to rebuild a new credit card or you might lose your home or car if you do not pay the loan with interest timely.

Disclaimer: This website nationaldebtlines.co.uk is in no way related to Step Change Debt Charity or approved by the Government. However, the product (IVA) which we specialise in, is processed and managed by Insolvency Practitioners under the following legislation: The Insolvency Act of 1986 (amended by the Insolvency Act 2000 and the Enterprise Act 2002) introduced a new procedure whereby a debtor could come to an arrangement with his/her creditors to pay his/her debts in full or in part over time as an alternative to bankruptcy.
The Insolvency Service, an independent government agency, has produced a guidance leaflet on dealing with your creditors. In some cases and with some debt solutions a proportion of debt can be written off. The amount written off will depend on your circumstances, income, level of affordability, assets and the current write-off policy of your creditors.