Getting into debt is not a difficult task, especially with the number of credit agreement and credit accounts that are available to the average consumer. It is not uncommon for a single person to have a mortgage, auto loan, overdraft, bank loan, two or three credit cards and several credit purchase agreements. While all have their uses, the mismanagement of credit can lead to serious financial problems including repossession, foreclosure and possibly even bankruptcy.
The Problem With Multiple Debts And Multiple Lenders
One of the biggest problems with having so many debts to so many companies is keeping an accurate budget. It is quite possible to owe more than ten companies different amounts of money on different dates and without keeping a very close eye on the individual payments, the debt can easily overtake your income and eventually your life. Debt consolidation is the act of borrowing one large amount of money to repay some or all of these outstanding debts. While in the long term it may mean repaying more money than you initially owed it can also be the difference between financial survival and financial ruin.
Remortgaging Your Home To Consolidate Debts
One of the most common ways to consolidate debt is through the remortgaging of your home. This is the most cost effective method of debt consolidation because the interest you will need to repay on a mortgage loan is considerably lower than that of any other type of loan. However, you do need equity in your home and you should be aware that a failure to meet the repayments on your mortgage will eventually lead to the foreclosure of your home.
You should first consider contacting your current mortgage lender and asking if they can help. If this doesn’t bear the results you require then look around at specialist mortgage lenders. Be careful not to jump at the first offer you receive; take your time to consider the options and determine if there are any potentially better options.
The Specialist Debt Consolidation Loan
A specialist debt consolidation loan is another option and enables you to consolidate some or all of your outstanding debt. This does not normally include your mortgage, which will have a much lower interest rate anyway. A debt consolidation loan is an excellent way to pay off all your credit cards and other high interest loans leaving you with one simple repayment to make on a monthly basis. Consult your own bank or loan lender before shopping around the rest of the marketplace. You already have a borrowing history with these companies and they may be able to offer you the help you need quicker than other companies.
Balance Transfer Credit Cards
Balance transfer credit cards may be an option for you, but they are an option you should not take lightly. A balance transfer card offers 0% interest on any balance you transfer to your new credit card. This can help to consolidate several credit card and loan debts into one and give you the added advantage that you don’t need to repay any interest until the offer expires. However, problems can arise primarily because of temptation. Once you have repaid the balance of your old credit card you should cut it up and cancel your account. This prevents you from running up yet more debts at very high interest rates.
Changing Your Spending Habits To Prevent Further Problems
Regardless of the type of debt consolidation you opt for, the most important thing is that you alter your borrowing or spending habits once you have repaid your existing debts. There is a very reasonable chance that you have used a debt consolidation loan because you have previously overspent against your monthly budget. Using a debt consolidation loan will clear all the balances on credit cards, overdrafts and other credit loans. The temptation, then, is to go out and spend more than you can afford, relaxed in the knowledge that you now have a credit card balance to help repay your debt.
A Debt Consolidation Summary
Debt consolidation is a tool to help debtors fight their way out of debt troubles. Used wisely and correctly they can be of huge benefit but misuse can lead to further and irreparable damage. Take the time to sit down and calculate your finances. Write up a budget that details your incoming money and your outgoing money; this will leave you with the amount of money you can reasonably afford to spend on a monthly basis. The final step is to avoid temptation. Curb your spending habits to an extent that means you are only spending what you can afford to spend otherwise you will be in an identical position in no time whatsoever.