Debt Consolidation Mortgages

Introduction to Debt Consolidation Mortgages

Debt consolidation mortgages are one of the main methods that debtors use to manage their financial affairs and to avoid missing payments. In short, debt consolidation involves swapping all your individual debts for one large debt and hence one monthly payment.

Pros of Debt Consolidation
Although debt consolidation has received some very bad press recently, in certain circumstances it can actually be a wise move. Because a debt consolidation agency will pay off all your smaller debts and consolidate them into one larger loan, there will be less chance of missing smaller payments and, therefore, making your credit score worse.

By consolidating your debts, you will end up with one larger debt which can be repaid over a longer period of time. In most cases, it is inadvisable to extend the length of time that debts have to run. However, if the monthly payments are so large that you find yourself regularly defaulting, spreading the debt over a longer period of time may be the best, or indeed, the only option.

Cons of Debt Consolidation
Debt consolidation is not a cheap option. It is likely that this type of loan will cost more in interest, over the entire duration of the loan, than if you had paid off all the individual loans in their own time.

If you are considering a debt consolidation loan, it is vitally important that you calculate the exact costs of your current loans. Beware - many debt consolidation companies sell their product on the basis of the lower monthly payments; however, when you consider the extended duration of the new loan, you may find that the total costs are far in excess of what you would otherwise have paid.

There are often extended and onerous terms attached to consolidated loans which make any early repayments financially unviable. In addition, large penalties can be imposed if you miss a payment and this should be borne in mind when considering this type of loan. Debt consolidation loans can also have a negative effect on credit ratings and should, therefore, be seen as an option of last resort and not the answer to all debt problems.

Summary
Debt consolidation involves swapping several smaller loans for one large, consolidated loan;
this can be beneficial in terms of lowering monthly costs and keeping track of payments;
but, debt consolidation loans can be a more expensive long-term option and may have harsh terms and conditions.