What Is A Debt Consolidation Loan

Category: Finance.

Debt consolidation loans can be the answer to a number of financial problems, but before you take the plunge, make sure you re well informed.

Debt consolidation is when you arrange a single loan to cover a number of existing debts. What is a debt consolidation loan? Rather than juggling several expensive payments, such as credit card or hire purchase bills, a debt consolidation loan means a single manageable monthly payment. Compare an average secured debt consolidation loan of 14% APR to a credit card company charging 19% APR. Youll also benefit form lower monthly interest payments. Besides lower interest rates/ payments.

Without consolidation you may find that minimum monthly payments simply service the interest accrued on your debt, without having any impact on the debt itself. You also benefit from knowing that a consolidation loan runs for a fixed term, and that every repayment you make goes towards clearing the loan. Debt consolidation also offers an opportunity to repair your credit rating. It s a vicious circle: a poor credit rating means that lenders see you as a risk, which in turn means they charge you higher interest rates. Remember that any missed payments and bank charges count against you in the eyes of lenders. By repaying all your creditors and taking out a single loan.

Getting the best debt consolidation loan. You are already well on your way to rewriting your credit history. When looking for a loan, the first step is to work out exactly how much you need to borrow. Because most debt consolidation loans are secured against the value of your property. Calculate how much you owe on credit cards, overdrafts etc, standing orders. and only borrow as much as you owe. You wont have trouble finding lenders willing to arrange loans for considerably more than you actually need.

The next step is to begin shopping around for the best deal. However, getting further into debt rarely makes financial sense. Visit a number of FISA registered brokers and see what they can offer you. Make sure that you compare like with like. Recent industry regulation means that loan providers must now tell customers the total cost of repaying the loan, rather than monthly payments and the loans lifespan. Dont be tempted just by low monthly repayments as you may find that the loan has a substantially longer term.

Debt consolidation loans often make shrewd financial sense, but its important to know exactly what you are getting into: Firstly, you may be cutting your monthly outgoings, but its important to understand that you are refinancing your debt over a much greater period of time. Are there any drawbacks? In the long run you may actually be paying more. Finally, its worth bearing in mind that you are under no obligation to repay your outstanding debts. Secondly, most debt consolidation loans are also secured, which means that your property is at risk if you continually default on repayments. Use the loan wisely to repay existing debts. Use it simply to raise capital and keep spending and you will soon be in trouble.

And you can look forward to a bright financial future.

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