What Is A Debt Consolidation Programme?

Definition of Debt Consolidation

Under a debt consolidation programme, you only need to take out one large loan to pay off your multiple debts.

By consolidating your debts you only need to make one payment each month towards all of your debts instead of several monthly payments, which may all be on different dates and at different rates. You will only have one creditor you need to deal with.

It's effectively a legal procedure so that the borrower's unsecured debts will be consolidated to make a more affordable repayment. For example, you will be able to consolidate debt like payday loans, credit card bills, and utility bills and even unsecured loans.

Who needs a debt consolidation service?

People who are looking for debt consolidation advice usually have many reasons why they want to do this. First, paying off multiple bills simultaneously can be difficult for them to manage and they may be worried about missing their repayments, especially if they are struggling with their debt and have high interest rates. Second, and one of the most common reasons why people want debt consolidation is because they are short of cash and want to have a clean credit record as they will only have to make one single affordable repayment.

If you are planning to be completely debt free then debt consolidation advice could be the right choice for you. With expert debt advice, any type of debt can be effectively managed.

Is it the right choice for you?

It may certainly seem like debt consolidation may make paying off your debts much more easier, but it may not necessarily be the case. For example, although a debt consolidation loan could allow the management of your finances much easier, you could end up paying more over the entire loan's term. So, you need to get the right debt advice before moving forward.

Are you easily tempted?

If you are considering a debt consolidation loan, it could be tempting to use the borrowed money for something you fancy at the time, whether that's some nice clothes, a trip away or just a present to treat yourself with. Spending your debt consolidation money on non-essential or luxury items instead of paying your debts off can be a temptation that some may find hard to deny themselves.

The problem is that this a dangerous path to follow, as you will not only be increasing your debt but the impact on your monthly spend.

Before even considering a consolidation loan one the of best things you can do is to set yourself targets whether that is paying all your debt off, canceling all your credit and store cards and cancel all your agreements in writing.

Top Tip

Never be tempted to swap your unsecured debt for another debt consolidation loan. While this may well reduce the interest rates being charged, if you fall behind with your repayments you could face losing your home.

Debt consolidation advantages

Debt consolidation can help organise your finances as it will be easier to keep a record of only one loan and make one monthly payment at one place for all of your debts.

Debt consolidation disadvantages

There could be situations where debt consolidation advice may not help and could make the problem worse. For example, a debt consolidation loan could mean higher interest rates in comparison to the total of your current separate debts, or may even be more expensive over a much longer repayment term. You may also want to consider what penalties may be incurred if you intend to settle your current debts earlier than agreed.

How debt consolidation programs can help you

Debt companies offer debt consolidation advice and loans as potential solutions if the borrower cannot repay their many debts. Its main purpose is to reduce the amount of overall debt repayments by means of consolidating them into one manageable payment. Here are the 6 steps that are being undertaken by borrowers when applying for a debt consolidation loan:

1. Counseling. The loan's approval depends on the borrower's financial status therefore financial experts have to ask a number of questions for a better understanding of the applicant's status. After the interview, they can calculate the overall amount of the borrower's debt and determine whether he or she has qualified for the loan amount they need to become debt free. After getting all of the applicant's required details, they will be given advice on correct management of their financial affairs.
2. Sign the consolidation loan agreement. Once approved for a debt consolidation company the borrower will be required to sign a written agreement. The borrower must read all of the terms carefully and shouldn't hesitate to clarify any doubts that they have. Applicants should use this opportunity to ask any questions about any concerns they have, for example, whether the process is right for them and any definitions or terms they are unsure of.
3. Inform your lenders and creditors. The debt service will inform your creditors about your pending debt consolidation plan. However, bear in mind that creditors are not legally obliged to comply with the proposed debt plan, so you do need to be aware of this.
4. Prepare the payment plan. Companies offering debt consolidation plans prepare payment plans using their client's current financial situation. After this, they will send the plan to the creditors for agreement. This kind of process requires excellent negotiating skills on the debt service's side to persuade creditors to reduce their interest rates or just get rid of reduce their loan.
5. Choose the best repayment process. The debt consolidation company will present a proposal to the creditor. Once the creditor agrees that the proposal is acceptable, they will approve the proposal or may ask for a slight revision. Borrowers shouldn't worry about the repayment process as the debt service will make the repayments on your behalf to your former creditors. Your unsecured debts will be changed to a more affordable repayment so it is recommended the loan is repaid on time and late repayments are avoided.
6. Evaluation. It's important to inform the debt consolidation company if your financial situation changes for the worse or deteriorates to the extent where you're are struggling with payments. This way, the debt consolidation service will be bale to change the repayments to something more affordable.

Debt consolidation advice

We can discuss the advantages as well as the disadvantages of debt consolidation advice with you. We're straight talking and will inform you of the facts right from the outset, as you should expect. We can offer you the best information and guidance on all types of other debt solutions, so you can quickly identify the most appropriate solution to your debt problem.

Consolidating debts may not be the best solution. If you're having major problems managing all of your debts, with the right debt consolidation advice, we will help you find better solution to your debt problems.

Get the best debt consolidation advice completely free of charge and in complete confidence.

Visit our online Debt Help Site for anonymous, debt advice to assess your financial situation.