If you are thinking of contacting a debt consolidation agency about your existing borrowing, you need to make sure that by changing your terms, you will be helping your finances. If not, you may need to try other types of consolidation. Not everyone’s borrowing will be helped by debt negotiation.

To be useful in a debt negotiation, your debt must be flexible. It must be prepayable, which means that you can pay off a lump sum before the completion of the loan term. It must also be negotiable. This must be in your terms of contract and you must be able to renegotiate the terms of your borrowing. If you cannot do any of these things, then your debt is no good for a consolidation loan.

If you do have a prepayable loan, then it helps to read the small print of your terms of lending. It is rare that you will be given a loan for a certain term without having some sort of penalty attached. This is usually in the form of a sliding scale and a percentage of your loan. For example, you will be charged 5% of your loan if you repay it within the first year, 3% within the second year and so on. The fees you incur might mean that prepaying your loan is not a viable option because you will end up paying so much in fees.

If you are lucky, you could negotiate with your new lender to pay off the early repayment fees. But this has been quite rare and is becoming rarer in today’s financial climate. The only way to reduce the burden from this type of loan is to try to renegotiate a lower interest rate.

If your debt is non-negotiable, then you are stuck with it and you cannot repay it or negotiate a lower rate. The only thing to do is to continue with the repayments and to be wary next time you take out a loan that you do not get yourself this type of borrowing again.

A good idea is to deal with all of your borrowing which does not fall under this category and try to pay it off as quickly as possible. This lending may also be at a higher rate. Negotiate better deals and consolidate your debt where possible. Then you will only be left with that element of your debt which is non-negotiable and non prepayable. This too will eventually pass.

By Jasmina