Debt and You

Debt and your finances

For consumers facing mounting debt, the options may seem grim and forbidding. Negative consequences include being forced into bankruptcy, losing one’s home and car, and long-lasting effects on one’s credit rating. Even under less extreme circumstances, excessive debt can cause serious difficulties for consumers, forcing unpleasant choices and creating the potential for financial catastrophe if unforeseen expenses arise.

Informal arrangements with creditors can often help in this situation; however, since these are not usually legally binding, they can be rescinded at any time and can create a worse situation for borrowers over the long run. Additionally, many lenders are unwilling to negotiate with borrowers directly; without legal representation, consumers are at the mercy of large financial corporations. Binding debt agreements are also an option for some consumers. These usually require the assistance of a legal expert and can represent a significant expense for already struggling borrowers; as a result, they are not a practical choice for many consumers.

Many companies offer debt consolidation loans for consumers struggling to make ends meet. Essentially, debt consolidation is the combining of multiple debts into one personal loan, which typically has a longer repayment time. This can significantly reduce the monthly payment amount and provide a measure of relief for borrowers. Because consumers only make one payment, the risk of overlooking a bill and incurring penalties for late payment is also lessened.

Repayment terms and schedules for these loans vary; some debt consolidation loans require weekly payments, while others have fortnightly or monthly payment schedules. Variable-rate and fixed-rate loans are available as well. The duration of these loans can vary between twelve months and seven years, depending on the amount necessary. No security is required for most debt consolidation loans; however, in exceptional circumstances or if the amount is extremely large, some companies will request that the debt be collateralised. A fee for initial establishment of the loan may be applicable, but generally these sorts of loans do not require ongoing fees.

Consumers considering debt consolidation loans should be aware of the costs associated with the application process, as well as the amount of the new monthly payment. These loans should not be used as a short-term solution to financial problems. Most reputable companies require that the consumer demonstrate that the loan will be of long-term benefit and that the repayments will not constitute an unsustainable burden on current income. For many consumers, however, debt consolidation loans can offer a means to manage their finances and get their budget under control without the stigma and hardships associated with bankruptcy.

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