Debt Consolidation and Other Strategic Approaches to Debt Management

Debt management helps you avoid unnecessary conflicts with lenders and maintain perfect credit scores. It is all about honoring debt repayments whenever they are due and sticking to your overall debt repayment plan. However, it is important to acknowledge that loan repayments do take a toll on borrowers, especially when burdened with the repayment of multiple debts comprising items such as home loan, property loan, vehicle loan, student loan and credit card debts.  Debt consolidation is one such strategy that you can employ in managing your debt repayment schedule.

debt consolidation

This brings about the question: What is Debt Consolidation?  Many definitions of debt consolidation point towards the process of collapsing a portfolio of unsecured loans into a single, albeit larger, debt owed to a single lender. Simply put, rather than enduring the enormous tasks of dealing with multiple creditors, it would be worthwhile to collapse the debts into a larger loan but deal with a single creditor. This involves borrowing a lump sum amount of money and using it to repay all your outstanding debts. This ultimately leaves you only with the lender of the lump sum amount to deal with.

Pros and Cons of Consolidating Debts

Bundling your portfolio of loans into a single larger loan has its merits and demerits. In terms of advantages, a consolidated loan portfolio minimizes the risks of defaulting on monthly installments. This goes further to shield you from the costly fees and credit rating penalties that you would have had to endure in the event of loan repayment defaults to multiple creditors. It also goes without saying that dealing with a single lender increases your chances of solidifying your credit ratings and negotiating lower interest rates over time, for as along as you honor your monthly loan repayment installments without fail.

However, debt consolidation has its fair share of disadvantages, especially when you consider the additional interests and qualification criteria for consolidating loans. For instance, creditors conduct due diligence that involves thorough investigation of your credit profile such that, unsatisfactory credit ratings would expose you to higher interest rates. It is also worth noting that whereas the separate loans you are seeking to consolidate are unsecured, you will need to attach collateral security to be able to consolidate the debts. This brings with it the risk of losing your collateral in the event of failing to pay the loan since your lender will simply attach you security to the outstanding debt.

Pursuing Alternative Measures

A critical look at the downside of consolidating debts obviously triggers the thoughts of pursuing alternative contingency measures. Indeed, it is always important to consider Alternatives to Debt Consolidation while acknowledging that it is difficult to achieve fix-all solutions to any particular problems or challenges. For instance, poor credit record should not hamper you because you can alternatively go for Bad credit loans, for as long as you would be willing to incur extra costs in interest rates. One of the major advantages of such loans that turn blind eyes to poor credit history is that they are not attached to crippling limitations that put off many would-be borrowers.

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