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All About Consolidation Loans
Debt consolidation loans can be the answer to a number of financial
problems, but before you take the plunge, make sure you're well informed.

What is a debt consolidation loan?

Debt consolidation is when you arrange a single loan to cover a number of
existing debts. Rather than juggling several expensive payments, such as
credit card or hire purchase bills, a debt consolidation loan means a single
manageable monthly payment. You’ll also benefit form lower monthly interest
payments; compare an average secured debt consolidation loan of 12.4%
APR to a credit card company charging 19.9% APR.

Besides lower interest rates/ payments; you also benefit from knowing that a
consolidation loan runs for a fixed term, and that every repayment you make
goes towards clearing the loan. Without consolidation you may find that
minimum monthly payments simply service the interest accrued on your debt,
without having any impact on the debt itself.

Debt consolidation also offers an opportunity to repair your credit rating.
Remember that any missed payments and bank charges count against you in
the eyes of lenders. It's a vicious circle: a poor credit rating means that
lenders see you as a risk, which in turn means they charge you higher
interest rates. By repaying all your creditors and taking out a single loan; you
are already well on your way to rewriting your credit history.

Getting the best debt consolidation loan

When looking for a loan, the first step is to work out exactly how much you
need to borrow. Calculate how much you owe on credit cards, standing
orders, overdrafts etc. and only borrow as much as you owe. Because most
debt consolidation loans are ‘secured’ against the value of your property; you
won’t have trouble finding lenders willing to arrange loans for considerably
more than you actually need. However, getting further into debt rarely makes
financial sense.

The next step is to begin shopping around for the best deal. Visit a number of
FISA registered brokers and see what they can offer you. Recent industry
regulation means that loan providers must now tell customers the total cost of
repaying the loan, rather than monthly payments and the loan’s lifespan.
Make sure that you compare like with like; don’t be tempted just by low
monthly repayments as you may find that the loan has a substantially longer

Are there any drawbacks?

Debt consolidation loans often make shrewd financial sense, but it’s important
to know exactly what you are getting into:

Firstly, you may be cutting your monthly outgoings, but it’s important to
understand that you are refinancing your debt over a much greater period of
time. In the long run you may actually be paying more.

Secondly, most debt consolidation loans are also secured, which means that
your property is at risk if you continually default on repayments.

Finally, it’s worth bearing in mind that you are under no obligation to repay
your outstanding debts. Use the loan wisely to repay existing debts; and you
can look forward to a bright financial future. Use it simply to raise capital and
keep spending and you will soon be in trouble.

Michael Stepney is part of the team at First Aid Finance; one of the UK’s
leading secured loans brokers. For more advice or a debt consolidation loan
quotation visit their website at

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