Many of us are facing the harsh reality of not being able to keep up with the rising cost of living and our debt repayments. Unsecured debt consolidation loans are a popular solution to ease a debt crisis but are they your best option?

In the US, UK and Australia the household debt to income ratio is higher than it has ever been. We borrow more, save less and have now reached a point where it is difficult to pay all the bills because the biggest ones are debt related. However there are solutions to get our heads above water and take back control of our finances. One method of debt consolidation and reduction is an unsecured consolidation loan. This is an advance that does not need security, and therefore they are frequently promoted by Financial Institutions. These loans assist debtors in avoiding insolvency, put an end to the creditors calling, and can often result in one low monthly repayment. But are these loans the best solution for you?

Borrowers will tend to go for the loan consolidation option because of the simplicity of putting all debts into one. Another reason why this option is preferred to insolvency is because the media has created a negative feeling towards those that have chosen this path, with titles like “disgraced bankrupt” in the papers or on television. This has filtered down to the community as extremely negative, however it’s important to remember that everyone needs a second chance.

But how did people get to this stage? Credit has serviced our needs in the past 10 or 20 years as we try to keep up with our neighbors, or live a “have now, pay later” lifestyle. Also, banks used to be the only lenders of certain products, but the high rates attracted new players to enter the market. Debt products became so accessible that it eventually led to the Global Financial Crises, because the high risk borrowers gained access to the sub-prime mortgages.

The Truth of the Matter

Although it seems beneficial to replace your old high interest rate borrowings with a new low rate, the truth is that you are replacing debt with debt. Even though you could end up paying more interest in the long term, the one advantage is that the money you are not paying on your old high interest repayments can go towards other things. You could start contributing to your savings or health care plan, get your car fixed or see to all those other things you were putting off because all your spare cash was going into credit card and loan repayments.

If you are struggling to keep up with the rising costs of living because your money is tied up in repaying credit card debts, personal loans and car loans, then you will be best placed to focus on debt consolidation and reduction. Applying for an unsecured debt consolidation loan is definitely a step in the right direction. Not only will it let you catch your breath in terms of meeting monthly repayments, but the excess cash you will have can go towards savings or repaying the principal of the new loan. Aiming to get rid of your debts faster than the agreed term is an excellent new goal to have, and will help improve your financial future.