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Debt Consolidation

Debt consolidation is often used as a general term for dealing debt problems. More specifically it means taking out a new loan to pay off other debts - in effect consolidating those debts into one new loan.

The kind of debt that most people want to consolidate is, of course, credit card debt. This usually comes with a pretty high interest rate and if you only make the minimum payments each month it can taking surprisingly long time to get those balances down to £0.

How Debt Consolidation Loans Can Help

Debt consolidation loans are almost always secured loans. This means that you have to use your house, or some other property, as security for the loan.

This kind of loan is pretty much like a mortgage. The loan will often be for quite a long period of time - it can usually be up to 25 years. It most likely will have a lower interest rate than your credit cards too. These two things have the effect of making your monthly payments much more manageable.

Things to Watch Out For

You should be aware that you may actually end up paying more interest in the long run. The monthly payments may be lower but at the same time it can be taking you longer to pay the loan off and that means that interest adds up over time.

Also, if the loan is secured, you could be putting your home at risk if you can't manage to keep up with those monthly payments.

You should look out for any fees associated with the loan too. Like mortgages, many have fees, such as arrangement fees. You should bear these in mind when deciding the best course of action to take. If you are already struggling to pay bills, more fees might be the last thing you want