Debt Consolidation Loans are a way to group credit from a number of different sources in one place. The main attraction for most people is lower monthly repayments and reduced complexity in managing their finances. Debt from credit cards, secured or unsecured loans and overdrafts can be included. But be aware, lenders make this possible by;
- Lengthening the overall repayment. By doing this the Total Amount Repayable is increased, even though the interest rates and monthly payments are lowered
- Securing the loan against property. This means that if you fail to keep up with repayments, the lender can repossess your property to get their money back. Be especially careful if the interest rates on the loan are variable. So although the rate is affordable now, there is no guarantee it will stay this way.
That's not to say you should never consider a debt consolidation loan. But equally it is not a decision to be taken lightly. First consider what other options might be available to you;
- Dependent on the size and source of your debt, it may be possible to transfer onto a 0% balance transfer credit card.
- Have you discussed your repayment difficulties with your current lenders? They may be able to offer revised terms and conditions that are preferable to a debt consolidation loan?
- Consider making an appointment with one of the free debt advise agencies. These groups are charity based and have no financial interest in placing you with one solution over another. The main agencies are the Consumer Credit Counselling Service, Pay Plan, Citizens Advise Bureau and National Debtline.
Last, but absolutely not least...taking out a debt consolidation loan DOES NOT mean your debt is cleared. It simply means you are paying the same amount of money back to a different company.
Don't make the mistake of starting to run up more debt on the credit card or overdraft you have just cleared. The best thing you can do is close any credit card accounts and reduce your overdraft down to a safety net level. If you are still having trouble staying within budget consider visiting Citizens Advice Bureau again for help on budgeting more effectively.
If you need more information to decide which loan is the best for you, then check out
TheRateTart Guide to Loans.
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