A Guide to Debt Consolidation
Loans
Many people in the UK are
burdened with debt. Common types of debt include
credit cards, school loans, student loans, store
cards, bank overdrafts and unsecured personal loans.
There are two big problems with
these kinds of debt:
- They incur high rates of
interest.
- It is all too easy to get
even more into debt.
Very often people slip into debt
gradually, perhaps because of some change in their
lifestyle. Often a vicious circle takes over, with
debts piling on debts. If you find yourself in this
situation, it is important to take control and to
begin climbing out of debt.
Benefits of Debt Consolidation
For many people, a debt consolidation loan offers a
practical solution to this problem. There are two
key benefits of a debt consolidation loan:
- By replacing a set of loans
(credit cards, overdraft, etc) with a single
loan at a fixed rate of interest, you can begin
to regain control over your finances.
- By securing the loan on
property (i.e. your home) you can borrow at a
much lower rate of interest, and reduce your
monthly repayments by up to a half.
Pitfalls
It seems that a debt consolidation loan is likely to
solve a lot of problems, so what could the downside
possibly be?
Simply stated, the reason why a
debt consolidation loan is not a universal solution
to the problem of debt is that once you have cleared
your overdraft and credit card bills and reduced
your monthly payments, you may be tempted to start
spending again, running up further debts and ending
up in an even worse state than before! That does
happen, and before taking out a debt consolidation
loan, you need to ask yourself whether you would be
likely to do the same. If you cannot honestly answer
"no", then a debt consolidation loan may not be
right for you.
When is a debt consolidation
loan the right solution?
A debt consolidation loan will be the right answer
if you have temporary slipped into debt (perhaps due
to a change in personal circumstances) and want to
get out of debt faster. It can cut your interest
rate and your monthly repayments and simplify your
finances, putting you back in control. By securing
the loan on property you are making the most of your
available assets.
The benefits are that you can cut
your monthly bills and at the same time pay off your
existing debts in a controlled timescale. You can
also use the loan to free up an additional sum of
money for any purpose, for example to buy a car.
When is it NOT the right
solution?
If debt is a way of life, if you have consolidated
debts before, or if you don't trust yourself to use
the opportunity to climb out of debt, then a
consolidation loan may not be the answer. For
example, if you aim is to clear your credit cards or
store cards so that you can start spending on them
again, you may be headed for further trouble.
