Debt consolidation appears to be the most popular and convenient way in which a debtor can work towards getting out of debt. You may wonder what the catch is with such relative ease. As with everything, there is more to debt consolidation than meets the eye.
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No Lower Interest Rates for You
Lower interest rates are the most highlighted tactic used in advertising by debt consolidation companies. It is not completely untrue, but it is not exactly true for every applicant either. Only those prospective borrowers whose credit scores are outstanding are offered the lowest interest rates. Most borrowers with bad credit turn to debt consolidation lenders to avoid the high interest rates their current creditors provide. In the long run, they end up being in the same range. Lower interest rates are available to only a select few.
More Debt
You may find yourself in more serious debt than what you started with. Do the math, for example, you initially borrowed £3000 to pay your debt. You pay £56 a month for a period of 10 years at a rate of 12%. You will end up paying £7,526.40 by the end of the term of your loan. Having a loan at a higher rate for fewer years is better than having loan at a lower rate for a longer term. You should be well informed and not be fooled by the various gimmicks. Prior to borrowing money, calculate how much your current debts are and how much your loan will be by the end of the full term.
Not So Improved Credit Rating
It is true that debt consolidation can help improve you credit score. What advertisers fail to tell you is that it will also harm it. For the first year or so your credit score will be tainted as a result of you taking a debt consolidation loan. After that it should pick up, provided you do not incur additional debt.
Options
Now you may wonder what options you have if you are in deep debt and having doubts about getting a debt consolidation loan. You can begin by speaking with a financial expert who can help review your financial woes. They may be able to help you negotiate and set up a repayment agreement with your current creditors. However, do not just go to any advisor because many financial professionals are affiliated with a corporation to whom they recruit candidates. If at all possible, access a non-profit organization, private firm or some other non-affiliated official. They are likely to look out for your best interest and not point you in the direction of companies that will take advantage of your situation.
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