Published On: Tue, Feb 11th, 2020

Debt Management: Consolidating Debt and Consolidation Loans

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For many people experiencing debt management problems, the shear number of creditors and agents chasing payments can in its self be a significant source of stress and a distraction from dealing with the route cause of the problem. One option is to consider consolidating loans into a single form of debt known as a consolidation loan.

Whilst this is one solution, it may not be the best option in all cases. As with all financial products, the best option will depend upon one’s individual circumstances and terms and conditions will vary widely between service providers.

How Consolidation Loans Work

In essence the consolidation loan is a relatively simple financial product. The consolidation loan is a form of secured or unsecured loan taken out not for the purpose of spending, but instead for the purpose of paying off one’s outstanding debts to other creditors. By consolidating loans into a single form of debt, the management of payments thus becomes less time consuming for the individual.

As such, one may think of the consolidation loan as a big loan designed to pay off an array of smaller loans and forms of debt. In terms of taking out a consolidation loan, many will opt to use a specialist agency or debt management specialist, who will help to negotiate with existing creditors in order to consolidate debts into a single financial product.

The Advantages and Disadvantages of Consolidating Loans

Debt Management: Consolidating Debt and Consolidation Loans

The major advantage of the consolidation loan for the debtor, is one of time saving and the perception of security. Once all the debts have been consolidated, the user of the service has only one point of contact and only a singular payment to make each month. This in itself, can be a significant source of stress relief, where a debtor has been dealing with multiple creditors in the past. In addition, negotiations may also allow an individual to negotiate terms, which see total monthly repayments lower than previously experienced.

Despite the advantages of consolidating one’s debt, there are also some major disadvantages, most of which relate to costs. The first element to consider is that of the interest rate charged. In order to make a profit, providers offering consolidation loans do not necessarily do so at a rate which is as competitive as those offered on other financial products and services. As such, it is likely that paying back debt through a consolidation loan is likely to be more expensive in the long run.

Additionally, many credit agencies will negotiate with existing creditors to pay back only a fraction of the debt owed. However, the debtor is unlikely to see any of the benefit of this, one consideration is that it may be worth engaging in such negotiations with creditors directly as a debt management tool, rather than applying for a consolidation loan.

In summary, consolidating loans into a single loan is often a strategy, which can help to reduce the amount of time spent dealing with debt management each month and in some cases, reduce monthly outgoings. However, in the long term there is also the concern that such a strategy can also be more costly in terms of the total interest to be paid back.

About the Author

- I am an internet marketing expert with an experience of 8 years.My hobbies are SEO,Content services and reading ebooks.I am founder of SRJ News andTech Preview.

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