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Apr 14

Debt Consolidation Can You Really Save Money?

 If you reached the point where your debt accumulated to a point where you feel you cannot control it anymore it can be good to look for a loan where you can combine all your payments into one monthly instalment.

If you reached the point where your debt accumulated to where you feel you cannot control it anymore it can be good to look for a loan where you can combine all your payments into one monthly instalment.

Which accounts can be consolidated?

You will benefit by consolidating your credit cards as the interest on credit cards are very high.  You can also do so with other loans and store accounts. Secured loans like your car and house will be very difficult to consolidate as most lenders exclude these from their consolidation offers.

What benefit is there for one in consolidating.   

You will only benefit if the interest of the consolidation loan is lower than what you are paying now.  In the case of credit cards it should definitely be a good option as credit cards are considered the most expensive type of debt. Usually people only pay the bare minimum required on the credit card every month, this resulting into accumulated interest, the minimum required will be higher each month and soon it can reach the state where the credit card debt become totally out of control.

With all your accounts now combined into one loan with one monthly instalment you will have more cash in the pocket at the end of every month.  No more penalty fees on late payments as you can now afford the monthly instalment.

Is there a negative side to this type of loan as well?

Yes there is.  Your repayment period will be longer resulting in you paying more interest in the long run.  Should you decide to consolidate by using the equity of your house the interest will be the lowest but you could risk losing your house should it happen that you default on your monthly repayment.

When to stay away from a consolidation at all times.

If you do not have a very strong will power it is not wise to apply for this type of assistance.

You must be willing to close all credit cards totally and must be sure that you will not be tempted to open one again.  The same applies to loans and store accounts.  Do not apply for another loan before this one is settled. If you do not adhere to this basic rules you will be making your situation must worse than before.

What to do with the excess money now available to you.

Do not spend it on luxuries like holidays, spending it at restaurants etc.  Rather pay extra on the new loan account should you be able to do so.  Save some for unexpected emergencies like hospital bills or car repairs. Remember you choose this option as you want to get rid of your debt.

It is also advisable to work out a monthly budget and keep to that strictly.

What company to approach for the consolidation.

Do your homework well by doing some research. Make sure you apply from a reputable company only. Also negotiate for the best interest rate you can get.

Know what you sign for.

Make sure you know what you sign for before putting your hand onto paper. Remember you are entitled to an explanation in the language of your choice.  Do not pay any upfront fees with a so called guaranteed loan if you do so.  There are many scrupulous people out there that will take advantage of you. Make sure that you are indeed getting a consolidation loan as many of these people will bring you under the impression they are offering you a consolidation loan but are actually putting you under debt review or administration.