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Informative Articles

An Overview of Student Loan Debt Consolidation
A student loan debt consolidation loan allows you to combine your federal student loans into a single loan with one monthly payment. The repayments of a student loan debt consolidation loan can be significantly lower than the payment required...

Debt And Bill Consolidation And Its Two Faces
Debt or bill consolidation is one of the latest methods available by companies to take control of your debts. Debt or bill consolidation is also known nowadays as either debt settlement or debt negotiation. The process behind debt or bill...

Debt Consolidation – Discipline is Required if Consolidating with Home Equity
Debt consolidation is a popular topic these days. The average American carries nearly $10,000 in credit card debt and credit card debt of $100,000 is not all that unusual. New legislation that takes effect in October 2005 is going to make it harder...

Debt consolidation loan as a way out of debt
A debt consolidation loan is a single loan you can take out to cover the rest of your loans. A debt consolidation loan can offer a lower monthly loan repayment amount and less in interest payments. Therefore this type of loan is suitable over your...

Types Of Services Debt Consolidation Companies Offers
Bills: the word does really strike a chord in one’s heart, doesn’t it? It may remind you of pesky calls from creditors, notices of disconnection and politely worded warnings of legal procedures…and though you may dearly want to pay them all off, the...

 
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Do you need a debt consolidation loan?

If you are in financial difficulties due to debt or have built up a variety of debts over time, a debt consolidation loan may be for you. But before you take that route, you should consider all the options.

However you got into debt - unexpected financial difficulties, illness, loss of providing member of the family or overspending - you can turn to several organizations and charities for advice. These include the Citizen's Advice Bureaux, the Consumer Credit Counselling service, the Community Legal Service (England and Wales) or call the National Debtline on 0808 808 4000. Remember debt consolidation is one option and you should not feel pressured into taking it. These organizations can help you consider the alternatives.

Your own lenders can also be surprisingly sympathetic about restructuring repayments. Talk to them as well.

Having said that, many borrowers can benefit from consolidating their debts on better interest rate terms. Some credit cards cost up to 17.9 % (e.g. MBNA) and store cards can cost more. Consolidating your debt could cut interest payments by up to two thirds.

It may be more convenient to make one payment rather than several. Or you can improve your cash flow in the short term by reducing monthly outgoings. But this may cost you more over time because you are paying the debt off over a longer period of time.

Be careful if you are borrowing larger sums of money (over £ 25000) as your loan is likely to be secured as a second mortgage rather than an unsecured personal loan. Many adverts make it sound like debt consolidation will solve your financial problems. But taking out a secured loan means you are gambling your house that you can repay the debts. You need to be sure of your ability to repay before doing this.

Most people simply want to consolidate


unsecured personal debts, overdrafts or credit cards. Taking out a second mortgage to do this could mean you lose your home if you fail to pay the debt even though you keep up the payments on your first mortgage. You should also consider insuring this kind of loan, although not necessarily with the lending company. You may find a cheaper policy elsewhere.

Make sure you deal with the causes of your debt as well as restructuring your credit. There is little point in taking out a debt consolidation loan if you continue to live beyond your means. If you don't exercise financial discipline you run the risk of getting into the same trouble again in two or three years time.

Before taking out a loan, think about how much you can afford to repay per month. You need to know -

- what the APR is - whether it is variable - what the overall cost of the loan is - if the rate of repayment can change for other reasons - what happens if you miss a payment - what happens if you repay early or refinance - if you have secured the loan on your home, what are the consequences of defaulting - what happens if you decide to move house

Things to be wary of are -

- firms which specialize in debt consolidation; they generally cost more in interest and fees - claims to improve credit records; only you can do this and it takes time - offers to lend extra money, for example, to buy a car; extra debt puts your home at further risk

Finally, shop around for the best credit and payment protection deals. You do not have to get them from the same company and you may not get the best deal if you do.

About the author:

Working in site design, structuring and content for over 3 years and currently writing for Creditmarket.co.uk