Debt consolidation - how much debt can it cover?
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Posted On :
Sep-20-2010
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Article Word Count :
627
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If you're in debt, you may be wondering how much debt a debt consolidation loan can actually cover - well, if you are, the answer is in this article.
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A debt consolidation loan effectively 'groups' multiple existing debts together, leaving you with one combined debt and just one monthly payment to deal with, instead of many.
You'll still have the same amount of debt to pay off (not including any interest or other charges), but it'll be easier to keep track of - and easier to budget for.
Debt consolidation can also enable you to reduce your monthly payments by arranging to pay back the debt over a longer period of time. Freeing up additional cash this way can be very useful, but it will also mean you'll pay interest for longer - and you could pay more overall as a result.
However, if you are consolidating high-interest debts, such as credit cards, a debt consolidation loan may well save you money in interest. If you're unsure how much money you could save, ask a debt adviser.
When would a debt consolidation loan be appropriate?
Debt consolidation loans are best for people who are already managing their debts well, but want to rearrange (and simplify) their finances and/or spread out their repayments a little more. If you're in this situation, a debt consolidation loan can be an effective way of making more of your finances - although your debts will probably be with you for longer.
If you're really struggling with your debts, however, a debt consolidation loan is unlikely to be the best way of sorting out your finances. Any difference in your outgoings is unlikely to be big enough to make a real difference - and if you begin to struggle with your new loan, you could find yourself back where you started.
How much debt can a debt consolidation loan help with?
This depends on your circumstances, and what type of loan you're thinking about taking out.
Unsecured debt consolidation loans - loans that are not secured against your home for security - often have higher interest rates and shorter repayment periods than secured loans. The upside of an unsecured loan is that if you do run into problems with your loan at any point, the consequences are much less likely to be severe.
The typical limit on most unsecured loans tends to be around 15,000, with a maximum 7-year repayment period (although there are exceptions to this).
If you want to consolidate a larger debt, you may want to consider a secured debt consolidation loan (if you're a homeowner and your property is worth a fair bit more than your mortgage). This will be secured against your home, meaning the risk to you is higher, but you may be able to borrow more money over a longer period of time than with an unsecured loan.
Similarly, homeowners who want to consolidate their debts may be able to choose a debt consolidation remortgage. This involves using some of the equity in your home to pay off your debts - in a sense, 'borrowing back' some of what you've already paid on your mortgage.
You'd then have just one debt - your mortgage. So your mortgage would be bigger, but you'd have no unsecured debts to keep track of anymore. However, you should always think very carefully before you secure a debt of any kind against your property, as you may be putting your home at risk if you can't keep up with the repayments.
And remember: always consider whether consolidation is your best option before you go ahead - especially with larger debts. If you're struggling in any way, or worried that you might struggle in the future, then a different debt solution may be more suitable.
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Article Source :
http://www.articleseen.com/Article_Debt consolidation - how much debt can it cover?_33827.aspx
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Author Resource :
This guide was provided by www.firstdebtconsolidation.co.uk.
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Keywords :
Debt consolidation, Debt management, IVA, debt, debt advice, debt help, finance, budgeting,
Category :
Finance
:
Finance
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