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Debt Management   IVAs   bankruptcy   Debt Consolidation

Debt Consolidation

Debt consolidation means paying off a number of debts or expensive loans and replacing them with one loan repayable at a lower interest rate, or over a longer period, to bring the monthly repayments down to a manageable level. This loan is, almost inevitably, secured on property so this is usually an option for homeowners only. It can be very worthwhile when the debts involved are from credit cards or other high interest loans, and the management of the debt is much easier to keep under control when there is only one monthly payment to make rather than several, which could be due on different days of the month. However; re-paying many loans involves additional charges for redemption so before raising a new loan to pay off old ones, do make sure that you really will be better off in the end otherwise the total sum you owed could increase substantially! 

Secured loans tend to carry a lower interest rate, repayments can be anything up to thirty years or so and loans are often available even for people with a bad credit history. Do bear in mind that you could be exchanging unsecured debts  for one secured against your home, which may be at risk in the event of a default; but then, understandably, unsecured lenders tend to be a little more pressing in the event of problems than a secured lender who may be inclined to be more patient if there are short term difficulties in keeping up with repayments.

Advantages

  • Lower monthly repayments.
  • One payment only to make each month, instead of several.
  • Usually, a lower interest rate.
  • A longer period to repay the loan.
  • Depending upon the interest rate and repayment period it is possible to reduce both monthly payments AND the total sum repaid.

 

Disadvantages

  • You would be replacing unsecured loans with a secured one, which could put your home at risk.

  • If you borrowed the money over a long period you could finish up paying more in total than you would have paid out on your existing loans.

  • Look out for high redemption charges on your existing loans.

Conclusion

A debt consolidation loan could allow you to make smaller monthly repayments and save you a great deal of money if you repaid it over a reasonably short term and used it to pay off expensive high interest loans like credit card or store card bills but for other types of loan you may find that redemption charges could push the cost up. If you took the loan out over a longer period this could reduce repayments further but the total sum you had to repay would increase. Inflation of course may, or may not, reduce the true cost of a longer term loan. Make sure you do your sums before deciding!

Debt Management   IVAs   bankruptcy   Debt Consolidation

You may be able to save some money by buying short term car insurance instead of paying out for a whole year

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