Comment consolider ses dettesSeptember 22, 2016

How to Consolidate Your Debts

It can be difficult to manage debt. Sometimes debt can be owed to a number of creditors and become a real headache. Whom to pay first?

What is Debt Consolidation?

Debt consolidation is a method whereby all your personal debts (excluding mortgages) are brought together into a new personal loan. This type of loan is granted by a financial institution in order to enable you to repay some or all of your creditors through one payment, then to reimburse them according to conditions negotiated with that institution. In short, instead of having a number of loans or debts, each with its specific repayment terms managed separately, all are consolidated into a single debt to the bank, rather than a series of creditors.

Who Can Get This Loan and What Are the Selection Criteria?

In general, the institutions will accept debt consolidation according to these criteria:

  • The person's employment (stable, preferably) and income sources
  • The person's history and credit rating
  • The value of the person's assets
  • The amount of money to borrow

Other criteria may be added to these, varying according to the institution and the particular situation of the applicant (eg, the requirement of a co-signer who agrees to continue to repay your loan in case you are unable to do so).

The Pros and Cons

In addition to avoiding fragmentation and mismanagement, debt consolidation can allow you to make repayments at lower interest rates than those requested by creditors, thus saving you a lot of money.

This can be particularly advantageous if you have debts with high interest rates (credit cards, instalment payments, etc.) and are in a delicate financial situation.

However, even if you seem to fulfill all the requirements, remember that it is still difficult to be granted this type of loan. If the loan is granted, you cannot include all of your debts or reduce the total size of your debt.

Thus, while you can include public services and credit-card debt, mortgages are generally not admitted. Finally, we must also be very careful because financial institutions are usually intolerant of late payments on this type of loan.

Finally, Who Is a Good Candidate for Debt Consolidation?

Debt consolidation is an interesting solution to control your debt and get on top of a problematic financial situation. However, before you consider this option, you must take the time to examine the state of your personal finances and make a balanced budget. This is why it is essential to contact a financial adviser before taking any decision, to see if debt consolidation is really for you.

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