Understanding When You Should Go For Debt Consolidation

By Author: Adam Ibrahim
Total Articles: 59
Comment this article

Before finalizing on a debt consolidation company, it is important to learn if the consolidation of your loans is what you require. Debt recovery services in Australia might convince you into opting for a debt consolidation with the amount they settle for. In most cases, customers get convinced and arrange for a consolidation of loans that enable them to make multiple payments. However, understand that this is not the solution for all.

Considering the Impact on Your Credit Score

Those considering debt consolidation must know certain implications such as its impact on their credit rating. Individuals applying for a new personal loan will have a credit rating verification to analyse whether they are eligible for the new loan. A hard credit check can impact your credit score to some extent. For example, if you have credit card debts worth $25,000 and your overall credit limits through all the cards is $50,000, your credit utilization is at 50%. When you consider consolidating your credit card debts and you pay off the $25,000, your debt remains at $25,000 and the credit utilization becomes 100%. This is a drawback ...
... as this can lead to a decrease in your credit score despite you utilizing the overall credit limit. Further information on this can be obtained through any centres for debt help in Australia.

Better Debt Recovery

As explained above, debt consolidation of credit cards can impact your credit score. However, the option is safer for some individuals who can otherwise get into deeper debts making monthly payments for the card and still make the maximum use of the available limits. The dipping of credit scores can be a temporary situation that can change over time. However, considering that you can otherwise get into severe financial crisis due to the abuse of credit cards, this is a safer choice. You should inquire well about this with debt recovery services, before making the final decision. Do not fall for false promises from companies stating they can help improve your credit scores or take your name off the defaulters list.

Consider the Tax Liability

Firms offering debt help in Australia can assist you with debt settlements, which can be a good idea for some. Settling off the outstanding amount for a lesser amount agreed upon can be quite relieving. Yet, the amount that you did not have to pay becomes tax liable. Talk to the debt counsellor or the representative from the credit union about its implications on your financial status. Going through a reliable source can in fact assist you in such situations than having to handle it on your own. It is important to understand that consolidation or settlement is not erasing off your debts. You still owe the same amount or a considerably lesser amount to the lender, considering that your debts have been settled or consolidated to ease your financial management. Companies generally go for this due to the fact that they get at least half the amount (in case of settlements), which is a better option than you filing for bankruptcy.

Author’s Bio:

Author is an experienced content writer with many years of experience in the filed of finance. He has been appreciated for his many articles published online. Now he is providing information on debt recovery services and debt help in Australia.