All about Debt Consolidation
Due to the current financial crisis, many people are struggling to pay off several large debts, with some barely affording to meet the minimum payments. The danger with this is that the minimum payment barely covers the monthly interest on a debt. Therefore it takes years to pay off the balance and a substantial amount of interest is paid over the term. If this situation sounds uncomfortably familiar, perhaps it’s time you gave some thought to debt solution.
When you consolidate your debts, in effect, you gather all your debts together, work out the total and borrow the amount needed to pay off that total. The advantage of this is that you end up with just one loan, which is paid off at a manageable monthly amount. And, unlike your mortgage for instance, you will not just be paying off the interest but reducing the balance with each payment you make.
There are a number of debt solutions out there on the market but in general they can be divided between secured and unsecured personal loans. It is important that you understand the difference between these types of loan before you make any decision and certainly before you sign on any dotted line.
A secured personal loan is one that is guaranteed by your property. This means that, if you fail to make the agreed monthly payments, the lender has the right to sell your house to get his money back. Basically, if you don’t make payments as agreed your house could be repossessed.
This type of loan is something to think about if your credit history is less than pristine or if you are self-employed. It would also be a good choice if you need to borrow a large amount, say over £50,000 or if you need a long repayment period – up to 25 years. Because the loan is secured on your property you must, of course, be a homeowner.
If you have a good credit history, you may be able to get an Unsecured Personal Loan, although you should be aware that the lending criteria are even more stringent as a result of the credit crisis. With an unsecured loan you do not need to put up a guarantee, which means that if you fail to make the repayments you will not lose your home. However, it is vital when taking out this type of loan that you manage your repayments effectively and that you do not allow your debts to mount up again.
Various terms and interest rates are available to tempt you, and whatever the interest rate it is likely to be less than that charged on your credit card or storecard.
You will be able to borrow up to about £25,000 and take between 1 to 7 years to repay the loan and, in the meantime, we suggest you destroy your credit and storecards.
Both secured and unsecured personal loans can, if managed properly, help you to restore your credit history while saving you a not insignificant amount in interest payments.
To extend either type of loan, the lender will want to know that you have a regular income in the form of wages, so you do need to be employed. You can compare terms and conditions applied to the various options using online comparison sites; in fact, we would suggest that this is vital before you make any firm decision.
And don’t forget the good old Citizens Advice Bureau; they will help you to work out a debt management plan and negotiate with creditors on your behalf. Any payment plan agreed will be based on your ability to pay; if your income is severely limited you could end up paying just £1.00 a week and any interests accruing on your debts will be frozen.
If you are really struggling to pay your debts, you should contact the National Debtline as quickly as you can.