Debt Consolidation Loans Are Not for Everyone

The benefits of debt consolidation:There are a number of benefits to enjoy when it comes to debt consolidation. The first major benefit is that you can eliminate the need to deal with a range of different lenders and debts.For many people juggling various credit cards, loans, catalogue debts, stores cards, and other debts can be confusing and time consuming, and this can often lead to borrowers inadvertently missing payments or making late payments, which in turn can result in extortionate charges being applied by the lender and a black mark going on the borrower’s credit file. By consolidating your debts you won’ t have to worry about going to the time and trouble of making a range of payments to a number of lenders, which will save you time, inconvenience, and reduce the risk of missed payments and late payment fees.Another thing to remember is that when you have a range of different debts you are paying varying amounts of interest to each of the creditors. With some of the debts, such as with credit cards and store cards, the interest rates can be very high. With the right consolidation loan you could benefit from a lower rate of interest, and you will only be paying interest on one debt rather than on several, which can save you money over the long term.One of the main reason why people decide to consolidate their debts is because they find that the collective monthly repayments on their various debts is too high, and in the current financial climate this can make it difficult for families in Australia to make ends meet. A consolidation loan with a low rate of interest could enable you to cut your monthly outgoings considerably, easing the financial strain and making it easier to manage and repay your debt.Consolidating your debts can be a great way to reduce your monthly debt repayments without any adverse effect on your credit history or score, which is why this is such a popular solution with so many Australians.Possible disadvantages of debt consolidation:Of course, it is vital to consider both the pros and cons of debt consolidation before making any decision, and whilst there are many benefits to consolidating your debts there are also a couple of possible risks to consider.Over the past couple of years, with the global financial crisis and the recession having taken their toll, many lenders have imposed far stricter criteria when it comes to giving out finance. This means that it could be difficult for some people to find an affordable consolidation loan, especially if their credit history is less than perfect.Another thing to bear in mind is that some consolidation loans are taken on a secured basis, which means that they are secured against an asset – normally the home. If you take out a secured consolidation loan and you then fall behind with repayments you could risk losing your home, and this is a major disadvantage to taking out a secured consolidation loan. On the other hand, if you opt for an unsecured consolidation loan the interest rates may be higher and the amount that you can borrow is likely to be lower.You may also find that depending on the size of the consolidation loan you are able to get you cannot wrap up all of your debts with the loan because the consolidation loan is not large enough to cover all of your existing debts. This means that even if you consolidate some of your existing debts there may be others that you cannot consolidate, which means that you may still be left with two or more separate debts to deal with.