Debt - To consolidate or not to consolidate?

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Author: D Collins

Article source: http://www.articledeshboard.com/. Used with author's permission.

The festive season is over, and you've gotten Christmas out of the way, spending on gifts and food for the occasion in order to keep everyone happy.

However, once those bills start coming through the letterbox you'll begin to feel the pressure as you struggle to meet those repayments.

But don't worry, for you are not alone, because you're most likely to be one of over three million borrowers, who will find themselves tempted by the leaflets that accompany those bills.

With a wide range of companies offering a range of debt management and debt consolidation services in order to help with festive debt, many are now turning to such schemes in order to free up some income for the household.

Some companies offer borrowers the chance to combine their household debts (including credit cards, store cards, personal loans and overdrafts) into one affordable monthly repayment, commonly known as debt consolidation loans.

However, whilst such schemes can help in reducing monthly payments, they are usually short-term fixes. According to figures from the Citizens Advice Bureau, they received over 1.7 million new enquiries from the public about personal debt, an increase of nearly a fifth from last year.

And there are growing fears about the costs involved in debt consolidation, with borrowers often confused by jargon and finding themselves paying interest for early payments of unsecured loans.

Borrowers often don't take into account the cost of fees when repaying the old loans in order to consolidate. Interest charges can often make up more of the monthly payment, lenders are allowed to charge a month's interest for early repayment thanks to rules monitored by the Office of Fair Trading.

If you're looking at taking out a consolidation loan in order to clear those festive debts, be cautious and shop around. Interest rates and repayment amounts can vary depending on the size of the loan required and length of the repayment period.

It is also worth remembering that your credit record can play a part in your application for a consolidation loan. If you are unable to afford the repayments on such a loan, this could badly affect your credit rating and put you at risk for any future borrowing.

Borrowers are also advised to be careful of those consolidation loans that are secured against property, for if repayments cannot be met there is the increased risk of losing their homes.

Compare a wide range of debt consolidation loan providers and get help and advice on debt management