When you have a number of debts hanging over your head, the effort needed to keep on top of them can give you a lot of anxiety. Unless you plug the hole immediately, the mess your finances are in will definitely land you in hot water. How? Take credit card debts for example. Sure, flashing plastic at a shop can be very gratifying. After all, who doesn’t love the feeling that retail therapy brings? But the fun ends when you get the tremendous credit card bill at the end of the month, and you only have enough to settle the minimum payment. Sure, that works. But that’s only on one credit card, what about the others? If you are like most people, you probably have other credit cards in your name. And what about the normal expenses of daily life, like rent or mortgage payments, car payments, food, water bills, gas? When you add all these bills up, you may find that your salary just can’t cover everything. When this happens, you’re in dire straits.

Depending on your unique situation, a debt advisor may suggest that you go for debt consolidation. Make sure you go over the loan contract before signing anything. Debt consolidation is a way for you to clear your unsettled debts by taking out one big loan that covers them all. This loan is called a debt consolidation loan, and it is usually secured against one of your assets, such as your home. The loan company will be able to give you a loan at a lower rate of interest and longer payment terms because they view it as a secured loan against your asset. Unfortunately, this means that you will be in danger of losing that asset if you default on the debt consolidation loan for any reason. For example, if your home is the asset you used as collateral, it could mean that the lender will foreclose on you.

Taking out a debt consolidation loans can also be a risky thing. However, there are a number of advantages to this plan, such as:

You will have a single payment to make monthly to one bank, instead of juggling several bills.

The amount that you have to pay monthly can be not as much as the total amount you were paying off beforehand.

You will be covered in case the interest rates rise, since the debt consolidation loans typically has a fixed interest rate.

Assuming that you keep up with the monthly dues for the debt consolidation loan, your credit score will not be affected, as would have happened if you defaulted on your credit card bills or other loans.

Don’t forget to discuss your concerns with a debt advisor or loan arranger before going for debt consolidation. They may be able to come up with a way for you to pay off debt which is more suitable to your financial position.


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