The Pros and Cons of Debt Consolidation

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The Pros and Cons of Debt Consolidation Powered By Docstoc
					If you have multiple debts and are struggling to meet your minimum payments each
month then debt and bill consolidation can be a good idea in a large number of cases.
For one, the interest rate on a consolidation loan is likely to be far lower than the rates
you are paying on all your existing debts currently. The fact that you'll only have to
pay one fixed monthly sum on the debt consolidation loan on the same day each
month can often be beneficial for some people in terms of them being better able to
manage their budgets. For many people, having to remember multiple payment
amounts and numerous dates often leads to late or missed payments which then means
they incur penalty charges which only increases their debt burden. By taking out a
consolidation loan, it should not only reduce your overall debt burden but, managed
correctly, it should, over a period of time, enable you to restore your credit rating and
get you out of the red and into the black, ultimately.
  There are, however, a few pitfalls to be aware of when considering debt
consolidation loans. For example, if your debt level isn't too extortionate, it may be
cheaper to sell off other assets you have in order to pay off your multiple debts.
Alternatively, you might wish to consider a new credit card which has a low
(sometimes zero) percent APR if you think you can clear your existing debts within
the introductory period.
  However, if you do decide that a bill consolidation loan is the way to go, then you
should also consider other factors. These can include how much you'll end up having
to pay in total at the end against what you are paying currently. Yes, your overall
monthly outgoings may be reduced dramatically each month but you need to ask
yourself over what repayment term you'll have the loan for and how much does that
work out over the entire life span of the loan. Also find out if there are any additional
clauses with regards to things like payment protection insurance and if there are any
early settlement penalties.
  Shop around to try to obtain the lowest possible APR on a consolidation loan or use
the services of a financial broker to do that for you. Many brokers have access to
lenders which are not available to the general public and, remember, no reputable
broker will charge you for doing this as they get their income from commission
directly from any lender with whom they have fixed up a loan agreement on your
behalf.
  If you think you'd struggle even to pay off a consolidation loan, an alternative may
be to seek a reduced monthly payment agreement with your creditors. Naturally, this
will go down on record and will have an effect on your credit rating but can
sometimes be the best option, depending on the severity of your debt problems.
  And, finally, if you do decide to consolidate all of your debts, there are two key
things you should do. Firstly, cut up any credit and store cards so that you can't run up
debts on these again and secondly, learn to work off a budget which you should plan
in writing and stick to.
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