When considering debt consolidation there is much to think about. There are a lot of reasons to consider debt consolidation and for many people it is the right option. However it can also have huge risks involved so is therefore not the appropriate solution for everyone.
Most consolidation loans are secured against your home. This means that if you are a home owner looking to consolidate, lenders will use your home as a form of collateral (a borrow’s pledge of specific property to a lender). If for whatever reasons you are not able to keep up with payments to your lender, as agreed, this can lead to the loss of your home – which is one of the worst case scenarios for anyone in debt!
To avoid this outcome is quite simple. Think seriously about all the risks involved as well as what you will realistically be able to achieve through debt consolidation and consider fully whether you are absolutely certain of your ability to make the repayments every single month. The amount you will be able to borrow will be based on the amount of equity you have in your home, essentially so that the lender can be assured that in the event that you fail to pay, they can still get their money back!
You should really be analysing your financial situation fully, considering how secure your income is and thus your ability to commit to a long term debt solution like this.
Although the risk of losing your home is obviously the most important factor to consider when looking into a consolidation loan, if you can make repayments and are certain that you will be able to do in the long term, debt consolidation can be a means of dealing with messy levels of debt owed to multiple creditors. The advantages of debt consolidation include; only one payment per month, potentially lower interest rates and the ability to understand your debt more easily (with just one figure to focus on paying off).