When multiple personal debts become overwhelming, a debt consolidation loan appears to provide the answer. Credit card debt, overdrafts, hire purchase agreements and small loans can all be combined and a single, affordable monthly repayment made. However, this may not necessarily be the case.
Why a Debt Solution Could Be Better than a Debt Consolidation Loan
- When a consumer consolidates debt, cards and overdrafts are left active and are used again.
- Turning unsecured into secured debt provides a creditor with collateral.
- The repayment period is extended which means more interest is paid over the loans duration.
- Additional money is borrowed.
- Home equity is utilised and this can make refinancing or moving home more difficult.
- Missed or late payments may mean that a higher rate of APR is charged.
What Debt Solutions Are Available?
Should someone with personal debts have missed or made lat payments on an existing or past credit agreement, these will show on a credit report for a period of six years. This not only makes borrowing more difficult, it makes it more expensive. A debt solution, such as a Debt Relief Order (DRO) or Debt Management Plan (DMP) are helpful for negotiating modest levels of debt up to £15,000. An Individual Voluntary Arrangement (IVA) or choosing to declare bankruptcy may be the answer to serious debts.
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