Here are some answers to the most frequently asked questions about debt consolidation.

I am deep in debt. What should I do?

Debt is something that happens to everyone at some point or other for any number of reasons like a sudden sickness, rising medical bills, a loss of employment, or just because of spending beyond means. The important thing is to avoid making your debt grow worse.

You can solve the problem gradually through budgeting, credit counseling, debt consolidation, or even bankruptcy as a last resort. Which one will work for you? That is something that depends on the size of your debt and how you plan for your future financial needs. For a start, get in touch with your creditors if you are unable to settle your bills. It is better to tell them about your difficulty in keeping up with your payments. You can probably negotiate with them for reduced payment plans. This will help you keeping your credit rating from getting worse.

Can a debt consolidation loan help me solve my debt? How can I find out?

It depends on the size and nature of your debts. For some people it works out perfectly, resulting in debt reduction. What you need to do is understand exactly what a debt consolidation loan is all about, how it works and how it will suit your specific situation.

I thought a debt consolidation loan is something with which all my bills can be paid.

That is incorrect. A debt consolidation loan works similar to say, a second mortgage on your home.

I have heard that the monthly payments can be reduced with the help of a debt consolidation loan. Is that true?

Yes. Taking into account what your current monthly payment is, and the time you need to repay the loans, you can get a reduction in monthly payments for as much as 75%.

Is there a limit to the debt consolidation loan amount?

How much you can borrow depends on several criteria like your income, the equity on your property and how much you can afford to pay on a monthly basis.

How much time can I get to repay my loans?

You will need to decide this based on how much you can afford to pay each month. So you could become debt free in as early as three years to up to more than 20 years.

Is it compulsory that I use the debt consolidation loan only for debts or for other things as well?

Your priority must be reducing your debt. However, when you consolidate your current debts, you might be able to release money for other purposes. So if you plan to buy a new car, go on a holiday, or have a home makeover, you could use the loan for that. But ensure that you do not get deeper into debt.

What will happen if I lose my job or have an accident?

You can go in for optional accident, sickness or unemployment cover, in addition to life insurance.

Can debt consolidation affect my credit score?

If you have been in a debt problem, chances are your credit rating has already taken a beating. Your creditors will register that you have defaulted on your payment if you do not keep up the terms of your credit agreement. This will be on record for 6 years.

What happens when I get in touch with an online debt consolidation company?

Usually after you fill in the contact form, someone from the company will get in touch with you to assess your situation and fix up an appointment during which you can arrive at a suitable solution. You are in no way obliged to take up the offer. You will be asked to produce information of all your creditors and amounts owed, your income and expense details, details of mortgage and secured loans, hire purchase agreements and leases you hold, maintenance and other payments and details of county court judgments, if any.

Will I face the risk of losing my home?

Suppose you have a mortgage on your home, it will be taken into account to arrive at how much you are capable of paying your unsecured creditors. So this will ensure that there is enough money to continue to pay your mortgage. Stick to it, and you should have no problem.

Why can’t I settle my debts by myself without a debt consolidation company?

You can settle your debts by yourself. But debt consolidation companies are experts at getting you a better deal.