Debt consolidation is simply the combining of unsecured debts into a single new loan, usually to save money on a monthly basis by reducing the total monthly outlay. Debt consolidation involves taking out a new loan to pay off all the other individual debts.
This new single loan may result in a lower interest rate and lower monthly repayments. This can often be seen as a way out of high interest debt, however there are pitfalls that should be investigated and considered thoroughly.
While your overall monthly payments are likely to reduce, over the longer term you may end up paying more interest, particularly if you raise the loan by increasing your mortgage and take the new loan over a longer term – this may well also put your home at risk if you fail to meet the repayments.
It is vital to remember that consolidating does not clear any of your debt, it simply moves it. Improving your financial habits such as reducing your spending and saving hard, is always the answer however, debt consolidation loans can help you to achieve this.
Always consider debt consolidation borrowing carefully by taking expert advice to help you consider all possibilities.
If you are considering consolidating your debts and are looking for the best deal available, let our expert Mortgage Advisers do the hard work for you!