Is Debt Consolidation a Good Idea?
Is Debt Consolidation a good idea? Well, it’s complicated. No two cases of debt are the same so while debt consolidation can be a good idea for some, it can be a bad idea for others. The best thing I can do to answer this question is to provide you with information which will hep you make up your own mind whether it might be a good idea for you.
What is Debt Consolidation?
Debt Consolidation is a way to bring all your debts together into one repayment. This is usually done by approaching a money lender, such as a bank or financial institution and applying for a debt consolidation loan. This loan will be for the exact amount it would cost you to pay off all your debts today. If you are approved for the loan, the money lender would pay off each of your debts, essentially settling your accounts. Then you are left with one loan, one regular repayment and one set of interest and fees.
If you want to consolidate credit card debt, you can follow the same procedure, or you could find a low-no interest credit card and transfer the balances of your cards onto this new card, which will give you time to catch up on your repayments through the interest free period.
When is Debt Consolidation a good idea?
Debt Consolidation is a good idea if your debt situation has not escalated too far out of control. If you are only just starting to feel the pinch from your debts and haven’t missed a repayment yet, you are a good candidate for a debt consolidation loan. Most of the time, consolidation loan amounts are quite large to cover off a number of debts. Many traditional lenders won’t consider people who have bad credit ratings or ‘high risk’ people who look like they won’t be able to make the repayments for the term of the loan. There are options for people with bad credit to consolidate their debts, by going through a bad credit lender. You can read more about Consolidation Loans for Bad Credit in this blog post.
When is debt consolidation a bad idea?
The whole point of consolidating your debts is to give you a bit of breathing room to catch up on your repayments and reduce your debt quickly. If you consolidate your debts, you shouldn’t take out another line of credit (a loan or credit card) until you have made significant headway on your consolidation loan. If you are planning on consolidating your debts to free up some extra cash to take out another loan, debt consolidation is definitely not the debt relief solution for you.
It depends on the kind of debts you are trying to consolidate. If you have a number of debts all with penalty fees for breaking the agreement early, the money you save from consolidating might not be worth what you loose on penalty fees.
What else is there?
While Debt Consolidation is one of the most common forms of debt relief in Australia, it isn’t always the best idea, or even an option for some people struggling with their debts. But that’s not to say there isn’t a great solution out there for you. There are a number of debt relief solutions available in Australia to assist people to get back on financial track. A few suggestions are listed below. If you are completely confused and overwhelmed by your debt situation, you can call Debt Rescue for a No Obligation chat about your circumstances. Our Case Managers will be able to go through your debts with you and suggest the best debt relief solution for your situation.
Informal Debt Agreement
An Informal Debt Agreement is a contract between you and your creditors outlining a new repayment schedule which is affordable and convenient for you. The new repayment terms might include:
- Pay off the debt in one reduced lump sum
- Pay off a reduced debt amount over a specified period of time through regular repayments
- Freezing the interest and fees on the debt
- Paying only a percentage for each dollar owed
- A combination of the above
An informal debt agreement can be arranged through a professional case manager who will negotiate the terms on your behalf. As soon as an informal debt agreement is in place, your creditors must stop all recovery actin, so the harassing communication will come to an end. The best part about an informal debt agreement is that it is not monitored by any government body and therefore is not marked on your credit file like a formal debt agreement is. You won’t be listed on the National Personal Insolvency Index, making this the perfect solution for business owners, tradesmen and professionals who can’t operate as a registered bankrupt.
A debt agreement is a binding agreement under Part IX of the Bankruptcy Act 1966 between you and your creditors where they accept an amount you can afford to settle the debt. Proposing a debt agreement is an act of bankruptcy, but you aren’t subject to many of the restrictions declaring bankruptcy has. A debt agreement is an option to assist you with unmanageable debt and is an alternative to bankruptcy. Debtors are released from most of their debts when they complete all payments and obligations under the agreement.
Is Debt Consolidation a Good Idea?
So is debt consolidation a good idea for you? That is for you to decide based on your own circumstance. There are a number of debt relief solutions available to you. If you aren’t sure about your options or want more information, call Debt Rescue for a no obligation chat on 1800 00 3328.