Perhaps a better heading for this post would actually be – Can debt consolidation continue to work?  The reason being; the majority and most successful cases that any debt consolidation company could cite within their advertisements would be those that include the remortgage.  Once the conclusion has been reached that debts have become too much of a burden and that help in managing the financial situation is required, a debt consolidation company should be the next call.

The representative or debt consolidator answering the telephone will guide the enquirer through a string of questions which will probably be biased towards living arrangements and whether or not they own their own home. If that is not the case, they will more than likely still be able to advise and help with debt consolidation.

The debt consolidator will list all of the commitments, the debts and costs; from how much is spent on gas, electric and other utilities to the weekly shopping and socialising. The purpose of this “friendly interrogation” is for the debt consolidator to formulate ideas on what is reasonably affordable.

They will discuss various options that will take into account income and expenditure before making a proposal which should not be taken lightly as it could form a good part of life for a number of years. Therefore if at any stage one feels uncomfortable with the proposals suggested then that is the time to say so, these are suggestions and not binding.

Debt consolidation effectively means combining all debts into a single payment and as suggested at the start of the post the simplest method of achieving this is to increase the mortgage on a property, using the equity to pay off other existing credit card, loans and unsecured debts, if this is achieved via a remortgage there are disadvantages;

1. Short term loans are integrated to the longer term mortgage
2. During downturns in housing prices the debtor will become more susceptible to negative equity
3. Interest payable will be higher due to the increased term of the loan
4. The opportunity to chop away at loans is diminished
5. Unsecured loans become secured against the property

 

If indeed the enquirer is a homeowner the conversation effectively stops here. A debt consolidator would want to see commitment towards wiping out the debt and if this can’t be agreed they may question one’s intentions. However, this is not necessarily the only option available as long as an individual's credit rating is still in tact.

For those who are not home owners, or indeed home owners who do not wish to pursue this simpler method of debt consolidation, a consolidation loan may be arranged on the same principle i.e. all debts to be incorporated into a simple and single monthly payment. Once again there are advantages and disadvantages;

1. The interest rate is likely to be high
2. The loan will be initiated over a longer term in order to reduce outgoings
3. Overall costs will be high and contractually binding
4. There’s a possibility the additional freedom will lead to the same, but more critical debt problems in the future

StarReviews Top 3 Debt Consolidation Sites

1) Care One

2) Credit.com

3) CuraDebt

Compare All Debt Consolidation Sites

It would seem that there is no good alternative from the disadvantages labelled above, but that is the gloomy side of the equation; The positive side is that the credit rating will begin to heal, creditors will deal directly with the debt consolidator so the stress will be taken away, and if the plan set out by the debt consolidation company is followed there will be light at the end of the tunnel of debt.

It costs nothing to take those initial steps towards debt consolidation and if nothing else is gained it is at least possible to write off another option, so don’t delay as whilst no action is taken the interest just keeps growing and compounding the size of the burden.

 

Tags: debt consolidation, credit repair, money