Debt Consolidation Loans

You're up to the limit with six of your credit cards. On top of that you have mortgage repayments, you're making just the minimum payments on your car loan, you have a home improvements loan or even a holiday loan because you thought you would treat yourself to your first holiday in years; face up to it, you're completely up to your eyes in debt. So what is the solution?

Are Consolidations Loans Right For You

Debt consolidation loans could be the best answer to your debt problems. A debt consolidation loan works when a debtor takes out one loan which pays off many other loans. In other words, all your debts are consolidated into one, eliminating your worry of keeping track of all your repayments.

You've probably seen advertisements of smiling people who have chosen to take a consolidation loan with the weight of the world lifted off their shoulders. But are debt consolidation loans right for you? Explore for yourself, the pros and cons of this type of debt solution.

Advantages

• One payment versus many payments: Did you know that the average citizen of the UK pays six different creditors every month. Making one single payment is easier than figuring out which creditor should get paid how much and when. You are more in control of your finances and your outgoings every month. Therefore you know whether you will be able to afford those little luxurys in life.
• Reduced interest rates. The most common type of debt consolidation loan is the home equity loan, also referred to as a second mortgage. In this way, the interest you pay will be lower than most consumer debt interest rates. Your mortgage is a secured debt. This means that creditors have something they can take from you if you do not keep up with your payments. Credit cards are unsecured loans. They have nothing except your word and your history. This is why unsecured loans typically have higher interest rates.
• Lower monthly payments: Since the interest rate is lower and because you have one payment vs many, the amount you have to pay per month is decreased significantly.
• Only one creditor: With a consolidated loan, you only have one creditor to deal with. If there are any problems or issues, you will only have to make one call instead of several. This simplifies financial management making control of your finances much easier.
• Tax Breaks: Interest paid to a credit card is money down the drain. Interest paid to a mortgage can be used as a tax write-off. If this sounds like just the solution, have a read of the cons before you consider taking out a loan.

Disadvantages

• Easy to get into further debt: With an easier load to bear and more money left over at the end of the month, it might be easy to start using your credit cards again or continue spending habits that got you into such credit card debt in the first place. Not to get further in debt you need to have discipline on your spending habits.
• Your home is at risk: Consolidation loans are secured loans. If you didn’t pay an unsecured credit card loan, it would give you a bad credit rating but your home would still be secure. If you do not pay a secured loan, they do have the right to claim a share of your home.

Talk to one of our debt experts to see whether this debt solution best fits your needs.