If you’re researching on how to pay off debt, one of the key concepts you’ll encounter along the way is debt consolidation. According to many experts, debt consolidation is one way to deal with debt because it helps save interest. Other financial experts, however, beg to disagree because debt consolidation only addresses one symptom of the growing debt problem in the UK. If you’re thinking of debt consolidation, these things might help understand how it actually works better:
Consolidation is not for everyone.
Consolidation may seem like an excellent idea when you’re dealing with different types of debts but it’s worth noting that this route is not always for everyone. Before you try consolidation, you’d want to seek financial counseling or expert advice if necessary. Your debts need to be examined. Ideally, your balances should be mostly unsecured debts in order for consolidation to work.
Consolidation is a one-system payment for all your debts.
Once you’ve decided to consolidate debt, you’re essentially letting a third party handle payments for majority of your debts. You’ll be borrowing money to pay off all other debts so you only have one payment to worry about per month. At its simplest, that’s how debt consolidation works. The third party where you borrowed the money from will have a system to distribute your payments accordingly.
Consolidation will not solve your debt problems unless you put in effort.
While the third party has a preset system to take care of your debts, you still have work to do. Debt consolidation will just make the process of paying off debt a lot simpler and more efficient but you still need to be a team player in any case. You’ll still have to monitor your debts and the payments made. In fact, your lenders will still be sending you account statements, which you need to take care of.
Consolidation may be a negative mark on your credit history.
Before you finalize your decision to opt for debt consolidation, it’s important to remember that other lenders may perceive it as you filing for bankruptcy. It certainly is not bankruptcy but that’s just how it is in the lending market. If you do decide on debt consolidation, prepare for your credit report to get a hit or a red flag. Before you go for it, factoring this aspect in your decision will help.If you have a good credit score especially, thinking things through is essential. But if you’re already missing payments and you need debt consolidation then you should go for it if you really must.