| Is Consolidation Really A Debt Solution? |
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| Written by James Robinson |
| Tuesday, 27 April 2010 20:14 |
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Debt consolidation comes under harsh criticism by some as not really being a solution to debt at all. This is because debt consolidation does pretty much what it claims to do - consolidates debts. It doesn't wipe them out or settle them. Critics believe that the fact that the total amount owed only ever stays the same or even increases (depending upon interest and costs associated with the debt consolidation loan) means that debt consolidation really isn't a solution at all.
Debt consolidation comes under harsh criticism by some as not really being a solution to debt at all. This is because debt consolidation does pretty much what it claims to do - consolidates debts. It doesn't wipe them out or settle them. Critics believe that the fact that the total amount owed only ever stays the same or even increases (depending upon interest and costs associated with the debt consolidation loan) means that debt consolidation really isn't a solution at all. However, while it's true that that this solution won't reduce debts or clear them, it does have its advantages. Debt consolidation essentially involves taking out a loan big enough to cover the cost of all your other smaller debts and using this loan to pay those off. This then leaves you with one monthly payment as opposed to several! It makes the process for clearing debts more manageable and, contrary to popular belief, could actually reduce the amount owed in the long term, if for example, there is excessive interest and charges being applied to some of the smaller debts by existing creditors. However, there is also an issue with access to debt consolidation. In order to be eligible you often require a good credit rating - something that is not always the case in those struggling with excessive debts. Alternatively you may need to secure the loan against your home, which can mean that your home is at risk in the event that you are unable to make payments against the consolidation loan. Furthermore, consolidation loans will not be suitable for those close to bankruptcy who have no income at all. However, even those who might once have had no alternative to bankruptcy may well have such options now. The Debt Relief Order and the IVA are legal alternatives to bankruptcy for those experiencing personal insolvency. The first proactive step forward when you believe you are experiencing a debt issue, however, it to admit it, assess it and then seek the professional advice you need. Unfortunately, burying your head in the sand will not help. You will feel less stressed and more as though you are moving forwards once you know the options available to you. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Find out more about Debt Management. |