You're sitting there one day, off from work due to
the stress of your unsecured debts weighing heavily upon your
shoulders. Suddenly, in the background noise from the TV you hear a
fantastic deal - consolidate your existing debts into 'one easy
affordable loan'. You think wow, just what I need to get my debts under
control and you get the sales blurb.
Sounds great doesn't it?
Debt consolidation in the UK is not a new phenomena these days. It's
been around a while. Lots of people have taken out debt busting
consolidation loans. So why is the amount of debt in the UK still
rising so fast? And why are bankruptcies, IVA's and debt counselling
services stretched to their limits and running at all time high figures
right now? Well people get sold on the advantages but I'd recommend
thinking about the disadvantages too!
Advantages of debt consolidation UK
Well the interest rate normally comes down on the unsecured debt amount
borrowed making the monthly payments easier to afford.
Your debts come under control quickly so the annoying telephone calls
and letters from irate creditors stops.
Disadvantages of debt consolidation UK
(this is the bit they don't want you to think too hard about)
To get a debt consolidation loan usually requires some form of
property. By consolidating the unsecured debts to your home some of the
equity has now been lost. So what was once an unsecured debt now forms
part of a charge over your property. Every legal advert in the UK
selling this type of service will point out in the small print that
your home is at risk if you fail to keep up payments on (this now
larger) secured loan. So you've put more risk onto your property. I
regularly meet people who have bought their house maybe 20 years ago
for figures like £80,000 on a house worth £110,000 to find that a
decade on they have a house worth (say) £180,000 with a new debt
consolidated mortgage of £150,000. So they still only have a similar
amount of equity in the property but also have a mortgage now nearly
double in size!
Another disadvantage is that the term of the borrowing is usually
increased. Well sometimes the debt consolidation companies in the UK
will sell that as a benefit with a line like 'you can take longer to
pay your debt and allow yourself time to get on top of your borrowing
over the coming years'. I find that an odd statement. You have doubled
your mortgage in a decade and you have found yourself in debt but
suddenly your spending habits will change and you'll be debt free at
some point in the future. What are your thoughts as you read that?
Another interesting point arises here. Because the term is often
longer, you will possibly end up paying much more of your hard earned
money for that unsecured borrowing by the time you pay off your new
secured lending.
Did the debt consolidation company ask what your lifetime ambitions
are? You see, you may have got out of the immediate debt issues but you
may just also have signed away the possibility of that early retirement
/ new car / that holiday to see your family down under too. You see, if
the amount you are paying back is higher than you had budgeted for then
you may need to work longer to achieve your dreams. Was this discussed
with you?
Did you consider at least 6 solutions for getting our of debt trouble
before you decided on your debt consolidation loan? Can the company you
speak to even name 6 solutions for getting out of debt trouble? If not
then you have ignored several other options that may have been more
suitable for the financial position you found yourself in. It's rare
indeed to find loan and mortgage brokers that are fully trained in
solutions to tackle insolvency and debt issues. They have their
offering and will talk about the monthly repayment figures to
demonstrate how you could be better off, but is it the best way
forward? Well naturally, that depends on your situation.
A final word on debt consolidation in the UK
Now, I do believe that debt consolidation has its place but I also
think that there could be more done to understand that there are other
options for getting out of debt. Getting the right debt help and advice
is essential. Look at the advantages and the disadvantages for each
solution you consider for debt resolution and then make a more informed
decision.
There are more options for getting out of debt trouble then most people
realise, that includes debt consolidation but is not limited to just
that course of action.
If you would like to know what the 6 solutions to debt in the UK are
then you can get debt help and advice from Ed Pearson at Debt Dr.
This article does not constitute regulated advice. Please remember that
any action regarding financial advice should always be taken only after
considering the specifics of your own situation.
To find out more about Ed try, http://www.advice4debt.co.uk/debtquiz.htm
Ed Pearson is a Debt Dr offering debt help and advice to individuals
and small businesses across the UK.
Whilst you may love the stuff he writes, you should only ever take
action once you have considered your own set of financial circumstances
with a professional. This article does not constitute financial advice.
Article Source: http://
www.articlesbase.com/debt-consolidation-articles/lifting-the-
veil-on-debt-consolidation-uk-93377.html About the Author
Ed Pearson is a Debt Dr. Debt Dr specialise in
debt help and advice for individuals and small businesses. Ed can be
contacted on 0845 123 4000 or in confidence on 07970 659266.
http://www.debtDr.co.uk 'prescribing life without debt'
Please e-mail if you'd like to chat further on any area of your debt
finance or take the debt quiz now here:
http://www.advice4debt.co.uk/debtquiz.htm |
