What is Debt Consolidation?
Simply put, you take out a single loan to repay to multiple loans. When handled judiciously, this could be the solution to all your money woes especially if you are bogged down with unsecured loans. But, if you don't take your debt seriously, you'll find yourself in a deeper financial black hole. Whether you consolidate debt to dig yourself out or further in, depends entirely on your spending habits. If you have a problem there, recognize it, face it and deal with it. The advantages are, you pay just a single installment every month, the interest rates are lower and the overall monthly repayment is lesser. You save a substantial sum on interest alone. You can put this saving away for the rainy day. Obviously, this is a good option even if you are not in a debt trap. Let's explore the various options before you.
Getting Loans from Banks
Investigate what various banks have on offer. Take the time to read the fine print. If everything seems like Greek and Latin to you, consult a financial adviser. As a general rule, banks are wary of people with a bad credit repayment record. Defaulters and late payers are also similarly blacklisted. You may find it difficult to get a loan if you are unemployed or have recently (10 years prior to the date of application) been bankrupt. Having unsecured loans are also a disadvantage as far as banks are concerned as there is no collateral. If you can't get a bank to help you with consolidation of debts, are there other options?
Your Other Options
If you own a home, you can offer it as collateral and borrow money to pay off all the other loans. Remember, your goal here is to get out of debt as quickly as possible. So, choose a repayment option with this in mind. You may choose to remove funds from your retirement plan or borrow against your life insurance. A personal loan is another option. There are a couple of important issues you have to bear in mind when opting to consolidate debts. Will your current lenders charge you breaker fees? If they do, will the cost burden you further? Don't do anything in a hurry. Explore all the options mentioned here. Take the time to thoroughly understand them before decide which way to go.