Why is Debt Consolidation a Good Option?

Yesterday, Kerry, an employee of Wal-Mart’s Boston branch, returned home with a heavy heart. Earlier in the day, he received a call from his local Boston headquartered bank. It was regarding the mortgage he had utilized for purchasing his house. Kerry had failed to repay the mortgage amount for the last seven months and the manager had called him up to discuss about the same.

Three days back, he got a visit from his credit card issuer and he had used a pretty strong language and asked Kerry to pay the outstanding amount for the last ten months. He also has to service the loan he had borrowed to finance his higher education. Kerry is in knee-deep trouble. His creditors are pressurizing him to repay the borrowed amount.

The above-mentioned situation is not uncommon in the US. Many people find themselves entangled in a debt trap.  Study loans, home loans, unpaid credit card amounts, car loans, money borrowed from friends and acquaintances happen to be some of the components of this debt trap. They have creditors queuing up their outside their houses and demanding an immediate repayment of the loans. In other words, their lives are nothing short of hell.

However, debt consolidation, can lead Kerry and others like him from hell to heaven. Debt consolidation is nothing but taking a new loan to service old loans. It is particularly useful if one has numerous debts. Take the case of Stacy, who is associated with an ice-rink operating in Boston. She owns many credit cards and there was an outstanding amount on each of these cards. She also had to repay the loan that she had taken to purchase a car. She had also taken finance for her higher studies. If there was one word that she used to describe her debts it was ‘unmanageable’. She decided to get in touch with her college mate who was working in a Boston based bank. He advised her to go in for debt consolidation. Stacy followed his advice and applied for a new loan. She utilized the amount to service all her loans. Now, Stacy is at peace. She knows that she will have to set aside an amount of $ 2,000 to repay her new loan. Thus, going in for a debt consolidation allowed Stacy to make her debts manageable and gave her a correct picture regarding the actual amount that is payable by her.

Experts feel that debt consolidation also allows people to regain a greater control over their debts. Andy is one such person who proves that the experts are correct. Andy works as a freelance cartoonist with a magazine that is published from Boston. Andy had borrowed money from his many friends and acquaintances. And soon, his debts spiraled out of control. He also lost track of his debts since he was borrowing from one friend to pay the other. When the magazine’s editor got acquainted with Andy’s situation, the editor advised Andy to consolidate his debts. He got a fresh loan from a local Boston bank and repaid the entire outstanding amount. He decided against fresh borrowings and worked out a plan to manage his new loan. Debt consolidation allowed Andy to become partially ‘debt free’.

Debt consolidation can also allow you to actually reduce the amount that is being paid as interest. Research has revealed that many youngsters tend to buy things using their credit cards. The worst part is that they make use of multiple credit cards while carrying out their purchases. Many a times, they are not able to pay their outstanding balances before the due date and hence often have to incur late fees and penalty fees. On top of that, credit cards are reputed to charge a hefty rate of interest on the outstanding amounts. Hence, this leads to a greater outflow of money. Debt consolidation will mean that only a single rate of interest is payable and this can certainly curtail the outflow of money.  

Thus, there are a lot of advantages associated with debt consolidation and it can definitely prove to be a good option for those who are seeking a greater control over their debts.

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