Is Debt Consolidation a Wise Choice to Reduce Your Debt?

Debt in and of itself is not necessarily a good or bad thing, and indeed the clever use of leveraging debt can help boost investments. Drowning in debt, however, often leads to much more of a sinking feeling, perhaps that you’re helpless to keep up with payments to a dizzying array of different outstanding debts.
Late or delinquent payments to various types of debt can have negative consequences, and for some people, there seems to be no escape from what feels like a spiral of debt. Debt consolidation can be an effective way to get back on track and to wrangle in your outstanding debt and keep it managed.

What is Debt Consolidation?

Debt consolidation is the act of ‘bundling together’ various existing debts into one, single debt to one lender rather than multiple lenders. Some examples of debts that Australians commonly have include credit card debt, personal loans and lines of credit, outstanding utility bills, and other outstanding debts for goods/services acquired.

Particularly with credit cards, many people have not only one credit card (perhaps with a continuously high balance) but multiple, so juggling around debt payments to multiple high-interest credit cards alone could be a good reason to seek debt consolidation.

Advantages of Debt Consolidation

The best solution for resolving outstanding debts, such as credit card debt, is to pay it off. Of course, that is much easier said than done and for some people the task may seem Herculean. Debt consolidation can be highly advantageous for the following reasons:

• It simplifies all debt to one lender with one payment due.
• Long-term habitual repayment can increase your credit score.
• You may end up with better interest rates than what you had before.
• It helps you make meaningful progress towards paying off your debts.
• Can reduce stress and give you more clarity and peace of mind.
• Builds discipline to pay off your debt and to refrain from accumulating more.

Potential Drawbacks of Debt Consolidation

Anyone considering debt consolidation should also be aware that there are potential downsides, as well, including:

• Some consolidation services can be costly to set up and you may end up with the same or even higher interest rates. Choose a financial advisor that offers fair rates and transparency about their services.
• You may accumulate more debt if you lose discipline and open up new lines of credit or pull out new loans.
• Your credit score may be affected in the short term when first consolidating your debts.

Is Debt Consolidation Right for You?

If debt feels like a never ending spiral, you may feel helpless to escape. Missing or defaulting on payments can lead to real consequences, like repossession of assets or denial of service, e.g. water and electricity. The first step to improving your situation is to speak with a financial advisor and consider the option of debt consolidation.

Your debt should not feel inescapable but rather a burden that can gradually be lifted off your shoulders. Debt consolidation can help you feel empowered to lift that weight and free yourself from such situations.

Making the Best Choice for Your Financial Health

All financial decisions, including how to best handle outstanding debt, are highly personal and you should always feel in control of what you believe is best for you. A trustworthy financial advisor can, however, explore your options in greater detail, taking your situation into account, and offer professional guidance that can help you escape debt and build wealth.

Davlin Wealth Management

Consult with Davlin Wealth Management today.