All About Consolidation

The realities of debt consolidation.

The truth about debt consolidation remains a mystery to many people. Is it a sensible option when trying to reduce the cost of outstanding debt or it is a scam used by loan companies to boost their profits?

For some loan companies in the past their biggest profits have come from persuading customers to roll up their outstanding debts into a single large loan. By spreading the new loan over a longer term, they were able to reduce the customer's monthly repayments and make repaying their debt more manageable. But the costs were not necessarily cheaper, in fact in many cases they would be higher. Of course that's obvious as the money is being borrowed for longer, but many customers were not aware of exactly how much more they were paying.

Saving money with debt consolidation

So these types of loans can be more costly, but not always. It depends on the type of debts you are consolidating. If they are a selection of existing smaller loans then the benefit of consolidating can be marginal, but if those debts are coming from store cards or credit cards which often charge very high rates of interest, then savings can be made.

The other disadvantge of card debt is that the card provider only ever insists on a minimum repayment being made - they don't encourage you to plan for complete repayment of the debt over a set period of time. So these card debts roll on for year after year at exagerated interest charges. It is these debts that are ripe for consolidation. A lender will calculate the relative costs of each option and illustrate how savings can be made with the correct consolidation option.