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Do your maths with consolidation loans.
Tuesday, July 31st, 2007Consolidating debt into one loan normal comes with a lower interest rates, but there is a catch.
Your consolidation loan may result in lower monthly payments, especially compared to store and credit cards. However the catch is that the term of the loan is longer and therefore you’ll be paying back more interest in total.
You may save money on a debt management programme. An added benefit of this is if you fall into difficulty when on debt management, you can renegotiate repayments to suit affordability. This may be harder if you only have one creditor and may put your home at risk if the loan is secured on your property.
Never be tempted by any consolidation loan unless it is completely affordable. Reducing payments on debts from £1000 to £500 may sound very attractive, but if your circumstances can only run to £300 then you are instantly in the red to £200 per month again.
Not only will you have to start borrowing again to keep straight, but your original debt will have increased by, typically, 50% by spreading the original debt over a longer period with, of course, fresh interest on top. In the meantime, the original debts, typically expensive credit cards, will be built up again.
Only misery can result from this, consider giving me a call on the office number of 0800 043 2444, or call me direct on 0161 905 8813.