Don’t get me wrong, for some people a consolidation loan is viable option, it might actually save a great deal of money in long run – especially if the current debt is sitting on expensive credit cards. The main problem with consolidating is that, once consolidated, there is the risk of borrowing on the various cards again and thus inflating the magnitude of the situation much more. Those that consolidate must erase the temptation of borrowing – cancel the cards! Consolidating can be expensive, often interest has accrued on the original agreements which will then be consolidated against; the new agreement will also attract interest – and so the situation compounds. This gets even worse if the original agreement had payment protection insurance. Many individuals note the nice low monthly instalment, it could be caused due to the fact that the consolidation loan is over many years, I’ve seen some that are 15,20,25 years long. The interest which could accrue over a long period of time could become a very significant amount indeed.
Secured loans should be avoided if at all possible. Turning debt from unsecured to secured converts it from being regarded as a non-priority to priority. Failure to pay a secured loan could result in the repossession of your home. It is much, much more difficult to negotiate reduced payments on a secured loan than it is an unsecured one although the recent changes to the Consumer Credit Act now give greater provisions to allow you to ask a court to make a ‘Time Order’ which could reduce your instalments to a level which is more manageable.
If consolidating is something that you are seriously considering it is imperative that you seek financial advice to ensure it would be in your best interests, and that you get the best possible deal. If you’re interested in speaking to someone knowledgeable, who will not try and sell you something please consider seeking advice from the folks at the Money Advice Service
http://www.moneyadviceservice.org.uk // 0300 500 5000
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