5 Questions to Ask about Debt Consolidations and Loans
When it comes to British consumers and their debt consolidations, loans secured against equity make up the lion's share of money borrowed to pay off high-interest debt. There's a good reason for that. Secured loans offer people struggling with debt a reasonable way to pay off what they owe at a lower rate of interest and on a set schedule.
We frequently cover debt consolidation in our blog posts because it is one of the main reasons people take out secured loans against their property. One consumer after another is coming to the realisation that a debt consolidation loan can help restore financial stability and satisfy creditors at the same time.
Is a debt consolidation loan right for you? We cannot say. We can encourage you to ask yourself a series of questions that may give you the answer, though. The five questions below make for a good starting point that can help you understand whether you are a good candidate for debt consolidation or not.
1. Is most of what I owe high-interest debt?
Debt consolidation loans are normally utilised to pay off debts other than first mortgages and car loans. So we're talking things like credit cards, personal loans, payday loans, and revolving lines of store credit. Ask yourself this: are most of the debts you owe (above and beyond your mortgage and car loan) high-interest debts like credit cards and personal loans? If so, a secured loan for debt consolidation will likely cost you less in the long run by offering you a better interest rate than you are paying right now.
2. Do I have a working budget in place?
Before any bank lets you borrow against the equity in your home, you will have to demonstrate you have the income to support such borrowing. You will need to have a working budget in place to prove that. If you do not have a working budget, the first step to solving your financial problems is to put one together. Remember that a budget is a spending outline that accounts for all your income and outlay on a monthly basis. Do not try to get a debt consolidation loan without one.
3. Do I have the necessary income?
There is no point in taking out a debt consolidation loan if you don't have the income to support it. In fact, doing so is downright foolish. A debt consolidation loan that relies on home equity for collateral is one that puts your property in jeopardy if you cannot make your payments.
4. Can I change my spending habits?
The fact that you need a debt consolidation loan suggests that perhaps your finances are not in the best shape. You should know that the key to success in debt consolidation is to change your spending habits so that you do not continue accumulating debt you cannot afford. Ask yourself whether you can change how you spend. If you can, a debt consolidation loan may be right for you.
5. Is bankruptcy a possibility?
Lastly, ask yourself if your financial position is dire enough that bankruptcy is a possibility. In a blog post we recently published, we wrote about a man who was able to get a debt consolidation loan after beginning bankruptcy proceedings. He paid off his debts and convinced the court to annul the bankruptcy. Problem solved.
We encourage you to answer these questions about debt consolidations, loans, and budgeting before you make any decisions about borrowing. How you answer should indicate whether or not debt consolidation is appropriate for you.
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