One Of The Most Popular Ways Of Easing Debt Pressure Is To Take Out A Consolidation Loan

Category: Finance, Credit.

It s no secret that in today s society personal debt is becoming more and more of a problem. While we have yet to return to the recession years of the late eighties and early nineties, it s pretty clear that the boom years of the last decade are finally over, and it s time to face up to the financial situation many of us find ourselves in.

After years of easy access to cheap credit, and a willingness by lenders to extend lines of credit beyond that traditionally deemed acceptably safe, the number of people who are beginning to experience problems maintaining their repayments is on the rise. For many, this means that positive action needs to be taken over debt levels. One of the most popular ways of easing debt pressure is to take out a consolidation loan. Whether or not you re currently having trouble making your payments, the economic uncertainty ahead means it s only good sense to try and get a handle on the situation now while there s still a wide range of options available. At its simplest, the idea is that you pay off all your current debts by taking out one large, cheap loan which will mean you only have to cope with a single monthly repayment of a lower amount than your combined previous repayments before consolidation. Firstly, and this may sound obvious, make sure that your new loan costs less than your current debts.

Unfortunately, nothing in finance is simple, and there are a few things to look out for if you want to stop your consolidation plan going wrong. Your initial quote may look attractive, but once you take account of sometimes hidden costs such as broker fees, the loan might not actually be such good value- especially if these fees or charges are repaid over the loan term rather than up front. If your new loan is going to be secured on your home, you must make absolutely sure that you can afford to meet the repayments, even if your income drops a little in the future, if you re not to risk losing your home. Always recheck your figures before signing on the dotted line. Getting into trouble with unsecured debt is traumatic, but being evicted from your home is devastating. Don t be tempted to use some as fun money - you ll pay dearly in the long term if you do.

Once you ve actually received your loan advance, ensure that you really do clear your existing debts. Consolidation is a serious business and it should be treated as such. Write to the lenders explicitly telling them to close the accounts, to ensure that you can t use them in the future. Once your debts are cleared, don t just leave your credit card accounts and other lines of credit lying around with all the temptations to spend that that involves. Finally, take heed of the fact that your finances were in such a state that consolidation became necessary, and don t be tempted to start down the same track again by applying for new credit cards or loans. The worst possible scenario is that you again run up substantial unsecured debts, combined with the large secured debt you took out for consolidation- this is almost certain to lead to disaster.