Wednesday, October 31, 2012

Using Debt Consolidation as a Financial Tool | Business, Finance ...

Using Debt Consolidation

Are multiple debts piling up on you and making it difficult to manage your monthly payment load? Debt consolidation is one tool that borrowers can use to streamline their payment system. This concept works by combining all of your multiple debts into one single debt vehicle. When you have multiple debts, each will carry its own interest rate and other liabilities. By consolidating, it may be possible to take advantage of a single lower interest rate, saving money in the long run. This may help you to pay your debts off more efficiently. Before you decide whether or not debt consolidation is right for you, it?s a good idea to learn a little bit more about how it works.

When to Consolidate

If you only have one or two credit cards and are already paying low interest fees, you may not need to consolidate. Debt consolidation is generally an option for those who are finding their debt load to be unsustainable. If you use your credit cards to pay basic expenses each month, open new credit accounts when you?ve maxed out your existing accounts, or find it difficult to pay your bills, it may be time to look for a solution. It?s not uncommon to take out cash advances on one card simply to pay the balance on another, accruing hefty fees along the way. When you feel overwhelmed by debts, debt consolidation makes sense to get your head above water again and put all of your debts into one place.

How to Get Started

It can be an intimidating process to start realistically dealing with your debt. The first step towards debt consolidation is to identify just how much you owe, and to whom. Consumer debt is the type that you should be most interested in eliminating. You can make a list of what you owe to each creditor, and how much interest you?re paying on each account. It?s also a good idea to create a budget marking your essentials and non-essentials. When having difficulty with budgeting and financial planning, it may be helpful to meet with a financial advisor at a firm such as Lombard Odier to start planning your future.

After you have prioritized your expenses and determined where your money is going, you can look for a consolidation loan. Meeting with a financial advisor at your local bank can be the easiest way to go about this, particularly if you already have a mortgage. Expect to bring the basic financial documentation that you would need for any other loan. Information regarding your current employment and statements from your credit card accounts will help the lender make a decision regarding your loan.

Paying your Debts

The order in which your debts are paid off after being consolidated may be decided by your lender or yourself. A general rule of thumb is to pay off the highest interest debts first, before tackling the more reasonable loans. If you have difficulty finding a lender due to past credit mistakes, you could do this on your own and then try reapplying once your debt load has been reduced. A financial advisor at a firm such as Lombard Odier can be useful in helping you plan what to do next once your debt has been paid off.

Even the most dire debt situations can usually be solved with the help of a financial advisor, a solid budget, and the use of tools like consolidation.

Source: http://www.wura.co.uk/blogs/using-debt-consolidation-as-a-financial-tool/

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