Debt Consolidation Advice - Is consolidation your best option?
Consolidating your debts and credit cards into one affordable payment can make sense but is it best option for you?
Consider your options carefully. A Debt Advisor will advise you on the best action to take to tackle your debts. Complete the enquiry form and you will be called back with help and advice on the best solutions for your own personal debt problems.
Debt consolidation occurs where you take out a loan in order to pay off several existing debts.
A variety of credit products can be used in order to consolidate debts including:
- Remortgaging - The cheapest way to raise funds is usually to remortgage your home, particularly when mortgage rates are low. Even if you have a poor credit rating there are a number of lenders who will offer you low-interest mortgages.
- Secured Loans - A secured loan is similar to a mortgage as it is secured against to your home. However, a secured loan is likely to be for a much smaller amount than a mortgage, usually under £25,000. The advantage of a secured loan is that the repayment periods will be less, however interest rates will be higher.
- Unsecured Loans - If you have a good credit rating, then an unsecured loan is a less risky way of clearing your debts, as your home is not secured on the debt. However, an unsecured loan will come with a higher interest rate as the lender will have no security on the repayments.
- Transfer balance to a credit card - Unless you can play the '0% rate surfing games' by changing your credit card balance from card to card you could be caught out and end up with higher rate interest on your balance.
Points to consider before consolidating
Consolidation would mean that you would have just the one more affordable monthly payment to make rather than several unmanageable repayments to worry about.
However you should be aware that extending the period over which you repay your debt may mean that it will cost you more overall. The fact that a consolidation secured loan is secured on your property means that it may actually be your home that is at risk should you not be able to keep up repayments.
You may have more money available each month after your debt consolidation loan is arranged but you are still in just as much debt as before. Indeed you may even be deeper in debt if you have borrowed extra money as well. Borrowing more money to get out of a debt problem is not an option to be undertaken lightly. If you are taking out a debt consolidation loan you also need to make sure you are acting to rectify the true cause of your debt problem. A debt consolidation loan will appear to solve things by paying off the existing debts, but if bad spending habits continue, you may find that it's not long before you are back to square one.
