Debt Consolidation

Debt consolidation, if used properly, can be an effective debt solution . Combining all your debts into one new loan presents an easy and manageable way to deals with your debts. There are various ways in which your debt can be consolidated; through a re-mortgage, an unsecured loan or a secured loan. However, the pros and cons of each option should be carefully considered.

First and foremost, if you are considering debt consolidation, you must fully understand why you have accrued so much debt. This requires honesty; don't just blame circumstances or bad luck, be honest with yourself and examine why you have been spending more than you earn. Debt consolidation has a trap for the unwary - it will reduce your monthly repayments and this breathing space may lead you to believe that you can afford more debt -you can't.

Unsecured loan

This only applies to those who have a good credit score. Shop about for a low APR and look at the total amount repayable. The internet is the best resource for this. However, don't just rely on price comparison websites, some of which are biased in favour of lenders who have paid these sites for top billing.

Re-mortgage

Using the equity in your property may be an option for you. But before you think about doing this, remember that if you don't keep up repayments your home may be at risk. Normally your mortgage will be tied into a fixed term so any variation in this term will incur an early redemption penalty, which can be quite fearsome. This figure should impact on your decision whether or not to re-mortgage. You should also bear in mind that the amount added to your mortgage will be for the duration of your mortgage term. Again look at the total amount you will be repaying, as well as the monthly repayment.

Secured loan

Some areas of the press are quite critical of secured loans but this is due to ignorance on their part. Secured loans are right for some people. If you have a poor credit score and want to repay the loan over a short period of time, ie 5 - 7 years, then a Debt consolidation loan secured on your house is for you. During this period you can take measures to ensure that your credit rating will improve- primarily by avoiding more debt.

Debt consolidation sounds relatively straight forward and it can be but you must research the options fully. Find out which options are available to you and then work out the cost for each one. When you can see your figures in black and white, the solution will become clear.

Good luck - and if you have any problems or useful advice for others in the same position, post them on the debt forum.