What is debt consolidation?
By – http://debtcafe.ca
Debt consolidation is when you combine all of your debt repayments under one payment each month. People tend to think that the only option is debt consolidation loan though, if you have a credit card with high limit to include all of your balances, you can just transfer and put all of your debts onto single credit card. There are other ways such as second mortgage and home equity loans. All of those methods have one goal – to combine all of your debts into one.
Consolidating your debts will allow you to lower your monthly payments. In many cases, debt consolidation will lower your payments because you’ll be able to spread your payments on longer period. Also, if you are taking a loan, you can lower interest rate by just taking a loan with lower interest rate of what you are already paying. Of course, by making one payment instead of few, it’ll be much easier to manage your money.
This might sounds too good but keep in mind that by taking a debt consolidation loan you are also risking your home. If you will not make the payments, you will have to face foreclosure. Also, by extending your debt over a longer period of time you are actually paying more. Not to mention that for getting a debt consolidation loan you will need a co-signer, and if you don’t have that and also good credit, you will not qualify for a debt consolidation loan.
Is debt consolidation is the answer for you?
Debt consolidation can be a great solution as long as you know what you are doing and you do it at low cost without risking your home. You have to know where you are standing and whether it’s the answer for you or not. In some cases other options such as debt settlement will be better.
The bottom line is, that there is no magic solution for this. Debt consolidation will not be enough, for many of us, the solution is to change our bad purchasing habits and put some money aside for emergency. Many of us used to have a lifestyle we can’t really afford. So, the long term solution is to change your spending habits.