Debt consolidation is a way of merging multiple loans so that only a single monthly payment has to be made for all of them. One can choose to consolidate debt either by enrolling in a Debt Management Plan (DMP) , where you will have to pay an agency single monthly payments that they will distribute among your creditors. Another one can choose a Debt Consolidation Loan (DCL), where a new loan is obtained to pay off all previous debts so that only one combined loan has to be paid for.
Either way, if chosen properly, a debt consolidation plan can help you make debt settlement more manageable because you only have to pay for one bill for all your debts in one month. The interest rate may be reduced and the monthly payment can be lowered.
Advantages of Debt Consolidation
Debt consolidation’s advantages include having only a single bill to pay for your debts instead of multiple bills with different amounts and due dates. This helps avoid confusion that may result in additional fees such as in the case of late payments. The assistance of a qualified professional and company can expand your options in debt payment methods. They can also help lower interest rates, making the overall total of your payment even less.
Proper consultations will set you a monthly payment at an amount you can afford to keep up with regularly and without the additional fees of late payments. With a lower interest rate and a more manageable monthly payment amount, debts can be settled more easily and quickly. Bankruptcy, which will damage your financial future, can be avoided. Once debts are fully paid, your credit score will improve. Talking to a qualified expert can also teach you to manage your finances better, and you can make use of these lessons even long after your debts have been settled.
Disadvantages of Debt Consolidation
On the other hand, debt consolidation should not be treated as a quick fix but instead as a long-term financial strategy. Some people tend to relax too much after getting a debt consolidation plan because of the idea that they’ve already done something about the debt problem. With this mistaken idea in mind, they end up accumulating more loans on top of the consolidated debt that they haven’t finished paying off yet.
Debt consolidation is a method that can make debt payment easier to manage, but it does not magically get rid of it. Continuing poor spending habits will not improve your financial standing and can even make it worse. Also make sure to choose your debt consolidation plan ( www.consolidationdeal.com.au )wisely because choosing a lower monthly payment plan just so you can live a more comfortable lifestyle can result in a higher interest over the duration of the entire payment. If you are considering consolidating your debt, keep in mind that the debt is not the problem but is instead a symptom of the real problem: spending beyond your means.
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