Debt Consolidation Loans in the U.K.

by Paul Hardy

Britons love their cards. In fact, purchases made on debit and credit cards totaled 436 billion pounds in 2004. However, while credit and debit cards are convenient and easy to use, they can easily lead to high levels of unmanageable debt. And there’s nothing quite like a pile of unpaid bills to keep you awake at night.

Discipline and restraint are the surest ways to keep yourself out of debt trouble, but if you’re already there, a debt consolidation loan may be just the thing to help you get back on track.

Debt consolidation loans offer you the opportunity to combine multiple debts into one debt. The result is one easy payment, as opposed to multiple payments that can be difficult to keep track of and wreak havoc on your monthly cash flow. Also, the payment amount is usually lower than the combined payments of your previous debts, since the repayment period can be stretched out over a longer period of time.

Debt consolidation is offered by banks and finance companies in the form of secured and unsecured loans. To obtain a secured loan, you must put up some type of collateral such as your home or vehicle. While you are putting these items at risk should you ever default on your payments, secured loans generally offer you better terms, such as a low rate of interest. Unsecured loans allow you to borrow funds without putting up collateral, however you may be subject to much higher interest rates and less than favourable repayment terms.

Here are four things to consider when applying for a debt consolidation loan:

SHOP AROUND

In addition to the many banks and finance companies that exist, a quick internet search will also reveal numerous online companies in the U.K. that offer debt consolidation, often providing responses within one hour of submitting an application. These institutions are all competing for your business, so a little leg work may end up saving you hundreds or even thousands of pounds in interest charges.

CLOSE UNNEEDED ACCOUNTS

Once your individual debts have been cleared by the debt consolidation loan, the urge to once again rack up spending on those accounts may be overwhelming. You really don’t need more than one credit card; so remove the temptation to overspend by canceling any extra cards you might have. The last thing you want is to wind up right back where you started – owing thousands in credit card debt, on top of the consolidation loan you are still paying.

LOWER YOUR CREDIT LIMIT

If you decide to keep one credit card, ask the bank or finance company to lower the credit limit. Again, the intent is to curb your own spending habits and avoid accumulating more debt.

CREATE A BUDGET

The best way to achieve financial stability is to create a budget and stick to it. Spend some time tracking your regular spending and monthly expenses. Then create a financial plan that allocates money to both debt reduction and savings.



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