Your Options for Debt Consolidation
With credit being so readily available these days, I reckon most of us have experienced debt at some point in our lives. When it’s manageable and you’ve got a low interest rate, then borrowing can be a great way to get hold of some well-needed cash. However, when the payments start to become difficult to meet and you find yourself drowning in debt, then it’s time to look for a way out.
Nobody gets into financial difficulty intentionally, but we can quickly find ourselves struggling, particularly if we don’t have a large emergency fund to fall back on. When we first take out a loan or spend on a credit card, we usually do so with the knowledge we can make the repayments. But it only takes one small change in our personal or financial circumstances in order for those repayments to become a real problem.
If you’ve found yourself struggling to meet the minimum payments each month, and you’re struggling to keep on top of paying multiple creditors, then it’s worth looking into your options for debt consolidation.
What is debt consolidation?
Consolidating your debts means that all of your existing debts are combined into one new debt. The main advantage of this is that you only need to worry about making one payment to one creditor each month. If you’re finding managing multiple debts a real issue, then this can be a great way to get your finances back under control. You may also be able to get a lower interest rate when you put all of your debts together too, so the total amount you’ll need to repay will be lower.
Options for debt consolidation
When it comes to putting all of your debts together into one loan, there are a few different options to consider. You’ll want to do plenty of research into which option is best for you and your individual circumstances.
Home Equity Loans
If you’re a homeowner, then you could think about taking out a home equity loan in order to consolidate your existing debts. Home equity loans are generally lower interest rates, but it’s important to remember that your home may be at risk if you fail to keep up with repayments – so you should only consider this option if you’re confident that you can continue to make the repayments. Home equity loans are secured against your property in the same way as a mortgage, so if you fail to make the repayments, then the provider can look to take possession of your home in order to get their money back.
There are two main advantages of this type of loan. Firstly, the lower interest rate may well make the monthly repayments more affordable. Secondly, this type of loan is generally easier to obtain as the loan provider can use the equity in your home as insurance that they will get their money back if you fail to pay.
Unsecured debt consolidation loans
If you don’t own your own home, or you’re not comfortable with taking out a secured loan, then an unsecured debt consolidation loan is another option.
These loans tend to have a higher interest rate, as the lender doesn’t have the benefit of your property to fall back on if you fall into difficulty making the repayments. However, these loans can be organised more quickly as there’s no need for the lender to spend time looking into valuing your property in order to ensure there’s enough equity for it to be worth their while. Unsecured consolidation loans can sometimes be approved instantly, meaning they can be a better option if you need to consolidate quickly.
Whichever option you go for, it’s important to take your time deciding what’s right for you. You’ll need to work out your budget to be sure that you can afford to make the repayments, and be sure to read all of the small print before you go ahead.
