You keep falling further behind, and every time you seem close to catching up, something else drags you back.
Debt is easy to get into but challenging to crawl out of, which is why debt consolidation is such a popular option. After all, why not? Consolidating all your debts into one payment seems straightforward and a smart decision.
However, debt consolidation in Victoria isn’t necessarily the “cure-all” you might think it is. Here are some situations when other options might be a better choice:
Address the Root Cause
Consolidating your debts might provide temporary relief, but it doesn’t address the reason(s) why you fell behind. Consolidation might not solve all your financial challenges if your debt is due to overspending or poor financial planning. The bottom line? You may fall back into debt if you don’t address the root cause.
Potential for Higher Interest Rates
Consolidating your debts could come with higher interest rates than some of your current debts. If you have high-interest credit card debt, for example, consolidating it into a loan with an even higher interest rate will cost more in the long run. Compare interest rates and the loan’s total cost before you decide.
Secured vs. Unsecured Loans
These loans are secured or unsecured. Secured loans require collateral, such as your home or car, while unsecured loans do not require collateral but may have higher interest rates. Therefore, a secured loan would put your assets at risk if you can’t make payments.
Impact on Credit Score
Consolidating can impact your credit score. Applying for a new loan can result in a hard inquiry on your credit report, which can lower your credit score. Closing credit accounts after consolidating your debts can also lower your credit score.
Explore All Your Debt Relief Options
Debt consolidation loans are just one option for managing your debts. Other debt relief options, such as debt management programs or debt settlement, may be more suitable for your financial situation. It’s important to explore all your options with a debt consultant to determine the best course of action.
