In the earlier parts of the moneysupermarket.com debt crisis guide, Nick Lord examined debt consolidation, how it works and offered tips on things to watch out for when considering debt consolidation options. In part four he offers a summary of debt consolidation and whom it is right for.
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Debt consolidation loans can be a good option if:
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You have the self-control to see debt consolidation as a 'once and for all' solution.
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You use the reduction in outgoings to bring your budget back under control, pay
back any future credit card spending in full each month without fail, and start
saving for future unexpected or irregular costs;
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You are prepared to shop around to identify the best value debt consolidation
loan;
Debt consolidation loans can be unhelpful if:
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You use some, or all of the debt consolidation loan for reasons other than
repaying debt. If you need to borrow £10,000 to repay debt, then don't be
tempted to borrow £12,000 to also pay for an impulse holiday;
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You do not shop around and end up paying a high rate of interest on the debt consolidation loan;
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You do not realise the implications of taking on a secured debt against your home.
Debt consolidation loans can be disastrous if:
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You continue to accumulate debt after taking on the consolidation loan.
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You cannot repay a secured debt consolidation loan and lose your home.
Advantages of debt consolidation:
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Can reduce the total amount you pay each month on debt repayment.
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Maintains your credit rating.
Disadvantages of debt consolidation:
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Normally greatly increases how long it takes to repay your debts.
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Often only advertised to homeowners.
