Debt Consolidation Loans Aren't Always A Solution for Credit Card Debt

Debt consolidation loans are seen as an effective way to eliminate debt. However, for people who have credit card debt caused by overspending (as most people who are in debt do), a debt consolidation loan is likely to only make your problems worse. Let me explain.

Debt consolidation loans are attractive for three reasons. First, they combine all of your bills into one place. You now need to make just one payment. Second, you can sometimes obtain a lower interest rate with a debt consolidation loan. This will save you money (great news!). Third, a debt consolidation loan will likely free up some credit on your credit cards.

This last point is really the danger. When there's suddenly credit available to you on your credit cards, most people -- particularly those who have a debt problem -- are likely to take advantage of it. The end result is that you end up with more debt.

This is the problem with debt consolidation loans. You now have the ability to put yourself into even more debt. Unless you change your spending habits, you are likely to put yourself into even more debt than you are in right now.

Take me as an example. I took out a debt consolidation loan when I was in $27,000 of debt. I thought the debt consolidation loan would solve my problems. Unfortunately, it didn't. I kept spending freely like I always had. In less than two years, I racked up nearly $30,000 more in debt. At that point I had well over $50,000 in debt.

I wasn't able to get out of debt until I changed my spending habits. I set a budget, stuck to it, and paid cash for everything. The budget allowed me to have a plan and to find a way to pay down my debt. I suggest you consider a similar plan (instead of a debt consolidation loan) if you want to eliminate credit card debt.

Michael M Thomas paid off over $50,000 in credit card debt. You can learn how Mike did it by reading his blog. Mike's Credit Card Debt website also provides a free newsletter which regularly provides money saving tips. You can learn more about it and sign up for the newsletter here.

If you are serious about getting out of debt, you should consider a product like Debt Free in Three. Mike talks about Debt Free in Three on his blog.

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Debt Consolidation Loans- Freedom From Multiple Debts

If you are currently paying several loan installments at different rates with due dates at different times of the month, then a debt consolidation loan may be a valid option for you to consider. Most people take debt consolidation loans to pay off their arrears on credit cards. When expenses really get on to your head, apply for a debt consolidation loan that may earn you the benefits cited below.

* Save money on high interest credit cards

* Make one payment instead of many

* Manage your debts properly

* Build your credit record

* Get relieved from the pressure of varied creditors

Who needs debt consolidation loans ?

Recent research conducted by a business review website reveals that 64% of UK consumers applying for a consolidation loan do not close their lines of credit. They continue to spend, on average an extra £2,300 in addition to the newly granted secured loan.

The report also indicates that 63,000 debt consolidation loans were issued in 2006. Of these, 91% of applicants were not required to close other lines of credit with the proceeds of the consolidation loan. The loan was issued for the purpose of debt consolidation, but the consumer was not required to use the money for that purpose. This calls for adverse affects as borrowers instead of getting rid of their debts, actually end up multiplying them.

So, before applying for bad credit debt consolidation loans, ask yourself the questions cited below.

* Are you paying just the minimum amount on your credit card every month?

* Is the amount you owe on your credit card rises every month?

* Do you put off paying bills until the final reminder?

* Have you missed one or more mortgage, loan or card payments

* Are you finding it difficult to repay your multiple debts?

So, if you answer in affirmative to any one or more to the questions, you definitely need a debt consolidation loan.

Debt Consolidation Loans for Bad Credit to Delay the Further Worsening of Credit

The importance of debt consolidation loans can be best understood by people who are suffering with bad credit history. Debt consolidation loans for people with bad credit provides a manner in which they can prevent their financial condition and credit status from further deteriorating.
A debt consolidation loan replaces several small and big debts that a particular person might have incurred. Under this arrangement, a single loan is used to repay all debts of the borrower. Since the loan taken at this instance is not immediately repayable, borrowers get enough time to prepare for repayment.

Borrowers are referred to as bad credit when they have defaulted on debts in the past. Mortgage arrears, County Court Judgements, Individual Voluntary Arrangements, all count towards tarnishing the borrowers’ credit history. Credit history of borrowers is referred to in order to get data about the credibility that a borrower enjoys. A bad credit history would thus imply that the borrower has lesser credibility and thus make him a bad case for debt consolidation loans.

This however is not so. Borrowers with bad credit history are also considered for debt consolidation loans. The logic behind this is that by taking debt consolidation loans, the borrower with bad credit history is making positive efforts to change his/ her credit status. Thus, debt consolidation loan is readily available to people with bad credit history.

A slightly higher interest payment is what you are required to make on the debt consolidation loan if you have a bad credit history. You however need to distinguish between lenders who are charging the justifiable rates of interest and those who aren’t. The task is not as difficult. Just see what other lenders are offering to borrowers with similar circumstances. If that is not enough, you can request a select group of lenders to send their debt consolidation loan quote. The quote provides information about the rate of interest that will be charged, the period for which the loan will be offered and other important terms on which the loan will be granted. It is certain that on comparison, a few quotes will be rejected and some will be selected for further screening through several processes.

Once a debt consolidation loan provider is selected, the process of eliminating debts is initiated. The first step in any debt settlement process will be to make a list of the debts. The list must be as exhaustive as possible so that all debts are included.

The list of debts with the persons to whom each debt is due and the interest rate that each carries will be supplied to the loan provider. Debt consolidation loans with bad credit have a special feature that borrowers are guided in the debt settlement process. The guiding principle of every debt settlement process is to save maximum for the debtor. Only through a proper negotiation can creditors be forced to write off a particular debt or a part of it. Borrowers do not have the necessary time and skills to make this happen. Thus, the service of the debt consolidation loan provider becomes necessary.

Alex Jonnes is financial expert working at http://www.easy-debt-consolidations.co.uk. He is a resident of the united kingdom (UK). He is Masters in Business Administration (MBA).

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