Credit cards are one of the most expensive options available in the market. If you have too many credit card bills pending, it would be better to clear them as early as possible. You also have an option to consolidate them into one single debt. Thus, you would be relieved of dealing with several lenders at the same time.
Loans are helpful if you borrow money as per your credit repayment capability. If you have an income of ?10,000, you can hardly be expected to pay more than ?4-5,000 towards debt repayments. To measure this aspect of your financial health, lenders usually employ debt-to-income ratio. This ratio tells how much debt you are servicing against your income.
Normally, a DTI ratio of 20-30 per cent is considered good. But, if you are using half of your income in repaying the debts, it is a bad sign. It negatively reflects upon your financial health. Debt consolidation loans are useful in reducing the monthly outgoings meant for debt servicing. When you extend the total repayment period, the overall interest payments also increases.
Unsecured debt consolidation loans are enough for getting a loan up to ?25,000. So, if your credit card bills do not exceed this amount there is no need to pledge your home. When lenders sanction unsecured debt consolidation loans, they give due consideration to your credit score and DTI ratio. People who have several debts and are facing a threat of bankruptcy usually take recourse to these loans. These loans can be used to repay your existing debts that could otherwise create problems for you.
Apart from debt consolidation loans, Individual voluntary arrangements (IVAs) can also help you if you are highly debt-ridden. The difference between these two debt remedies is that IVAs enable you to write off some of your debts whereas debt consolidation loans do not.
