subject: Is It Good to Consolidate Debt [print this page] We have all become very used to living in credit. Whether we want to buy a house or car even for education, we even use it to give ourselves a way of life that we could not otherwise be living. Throughout our lives we use many loans and we probably could not live without them. Sometimes we have too many running at the same time and this is where the debt may start to get too much for us.
What is debt consolidation?
This is basically something that we would do to make all of our smaller loans into one big loan. The biggest purpose of this is to allow us to have just one loan to repay at the end of the month, and not have many different outgoings to different loan companies at different interest rates. The advantage is of using this is that we can use one single interest rate, which is hopefully competitive. Another main advantage would be that we do not have multiple payments coming out of our accounts on different days of the month. For example, if you have for loans or credit cards that all are paid one week apart then we have a weekly drain on our disposable income.
Can I save money?
If you use one single loan to cover all of your loans you can find that this loan can be much more competitive if interest rates are much lower than your credit cards or smaller loans. If you have collateral there is a good chance that you can get a secured loan in place of all of your unsecured debts. Typically any type of unsecured loan, whether it is a personal loan or a credit card outstanding balance is often at a ludicrously high interest rate. The interest rates can vary from between 11% right up to 35%. The average secured loan is usually around 8 to 13%, and this figure can be a lot lower if it is secured on a property or for a much longer-term. Even though the interest rates will be lower for very long periods of time, such as 10 or 15 year loans, the actual repayment over so many years can prove to repay a very large amount even though the amount per month is very low. For example, a loan of 10% per year means that in 10 years you will repay 100% which is double the borrowed amount. Over 20 years you will repay back 200% and so on.
Choosing a long-term loan
It is not necessary to have the loan over a long period of time unless you wish to minimize your monthly payments and allow yourself to have a large amount of spending money. The advantage of having a short-term consolidation loan is that you will finish with it much sooner. If you were to use a five-year loan, interest rates would be very much lower than your other loans, but the repayments would be twice that of a 10 year loan if not a little more. But after five years you will be loan free. If you are planning something such as buying a house, or starting a family you may find it important to clear all your loans as quickly as possible, in which case this type of short-term loan can quickly create your finances, repair your credit report and put you in the perfect place for where you need to be.
There are many choices for debt management it all depends on the circumstances of how good your credit rating is. Obviously the better the credit report the wider your choices of competitive loans it will be. There is no damage done to your credit report for choosing a single loan to consolidate all of your debt, it would in fact improve your credit standing.
Is It Good to Consolidate Debt
By: Emma Forbes
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