Is debt consolidation always the best solution?

Debt consolidation is the process of putting all your outstanding debts into a single loan thereby supposedly saving money and making debt repayent easier. In reality debt consolidation can take place in many different ways not all of which may be the right solution for every debt ridden borrower.

Borrowers who have significant assets but can not meet debt repayments because of low income

There are a number of options available for such borrowers. The best option probably is to sell down some of the assets to reduce debts. However if low income is only a temporary phenomenon, it may be possible to take out asset based loans to consolidate some of the more expensive unsecured debts into a mortgage. Asset based lending is still available depending on the specific circumstances of the borrower. Alternatively, for temporary income shortflls, debt repayments can be renegotiated in the short twrm to preclude the borrower from falling behind and damaging their credit history.

Borrowers who have no assets but have significant unsecured debts

This tends to be the most common scenario. Individuals who are not earning enough to cover their outstanding debt repayments. These often include credit card debts, personal and payday loans as well as utility bills etc.

Depending on the severity of the situation you may wish to consider debt negotiation, or a more permanent debt agreement. The later will be most helpful to individuals who see no way out of their financial predicament and are seeking a longer term solution that will be help to fully eliminate their unsecurd and unaffordble debts. The choice between  debt agreement and bankruptcy needs to be made in consultation with a debt specialist who will be able to explain the difference in these debt solutions as well as the implications on the borrower of choosing either one.

Borrowers who are absolutely able to maintain all current repayments but are looking for a better deal

This borrower could be very well served with a good debt consolidation loan where the more expensive utstanding debts are brought in together under a cheaper personal loan. Sometimes it can be even better to use zero rate credit cards to rollover outstanding card balances and attempt to pay these down during the interest free period. There are a couple of things to watch out for in choosing the balance rollover cards as the means to debt repayment – the main of these is to ensure that you do not use the 0% card for any new purchases.

Either way these borrowers tend to have good financials and with the correct guidance should be able to get rid of their debts in a relatively short period of time.

Borrowers temporarily out of work with unaffordble secured and unsecured debts

Where debt problems are only temporary because of an illness or loss of a job, it is generally possible to negotiate a temporary repayment holiday or a repayment reduction for a few months while the borrower is trying to financially recover. The trick here is to do so promptly by contacting the various credit providers. It is important the the renegotiated deal is in writing and both sides maintain their end of the bargain. Failing to advise the credit provider of your changed circumstances, could result in credit arrears and longer term damage to the borrowers credit history,

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