WHAT'S WRONG WITH CONSOLIDATION LOANS?

Before you take out a consolidation loan, be aware that this is actually the correct solution for only around 1% of those in debt.

There are many advertisements in the press and on television advertising consolidation loans suggesting that you can pay off all your existing debts and repay the loan with “One affordable payment”. Why do consolidation loan companies spend hundreds of thousands of pounds advertising to you? Certainly not to be totally altruistic. There are very few circumstances where a consolidation loan could be a sensible thing to do.

Consolidating debts usually involves borrowing more money in hope of managing the existing debt. Although this appears to solve immediate problems, more often than not it increases debt and simply postpones the problem until a later date. With a consolidation loan, you will always owe more than you did before and the length of time you remain in debt will be extended.

There are alternatives to consolidation loans. We can advise on the best way to get out of debt without making your situation worse.

Example:

If, for example you owe a total of £20,000 and you borrowed that amount to pay your creditors. You would now owe:

· £20,000

· PLUS the interest that the consolidation loan company would be charging

· PLUS any administration fees that they may charge for setting up the loan.

(The interest rates that these companies charge is generally exorbitant and often excessive , and if you own your home they may require you to allow them to secure the loan by way of a legal charge on your property.)

It is possible that you could end up with a total debt of more than £35,000.

If you are considering this option make sure that you are fully aware of the total cost of the loan, plus interest, plus any fees that they may charge for arranging the loan. Be aware also that if they secure the loan on your property and you default on the payments you could lose your home.

Always seek advice. We will be able to advise you and possibly suggest some more sensible solutions, without the risk of losing your home.