Debt consolidation refinancing is especially useful if you are currently paying high interest rates on your debts, such as credit card debts. So, what exactly is debt consolidation refinancing and how does it work? As the term suggests, debts owed to various credit providers are combined (consolidated) and refinanced by a single credit (loan) provider who pays off all the other credit providers. You end up with just one loan from one credit provider, usually with a lower monthly repayment amount and lower interest rate. Besides easing your cash flow, this should also cut down the amount of time spent managing (or not managing!) your budget.
When evaluating a debt consolidation refinancing offer, it makes sense to shop around to find the best deal in relation to your circumstances. Although, the usual objective is to negotiate a lower interest rate and lower monthly repayments, this may not necessarily be the best deal for you. There are other criteria to consider such as whether you can actually afford to pay more per month (if you can, go for it), early settlement penalties and default charges to name a few.
A word of caution. Lower monthly repayments are usually achieved by spreading the term of the debt consolidation refinancing over a longer time frame. Depending on the interest rate, you could end up paying more interest over the life of the loan. If you are struggling to make ends meet at the current level of repayment and are having sleepless nights, this may be a price worth paying for the peace of mind that debt consolidation refinancing could bring. Before you rush into this, it would be prudent to sit down with a cup of coffee (or tea if you prefer) and have a good look at your expenses to see where you can trim your costs and maybe even if you could sell some non-essential luxury purchases to reduce your debts. You may be pleasantly surprised at how a bit of restraint and sacrifice can improve your finances dramatically!
There are many debt consolidation service providers around and you can approach a few of them to compare their offers. This assumes that your credit rating is respectable and debt consolidators are willing to take you on as a risk. What if your credit rating is poor? Well, this requires a different approach and I will cover this in a separate blog later on.
My next post will cover the things you need to do to successfully obtain a debt consolidation refinancing package. Stay tuned!
