Almost all of the stories about the inequities of debt consolidation loans in the press seem to revolve around the borrower not fully understanding what is being taken on, how much they are likely to be paying for the facility, or the longer-term implications of such a loan. The lack of understanding then makes it all too easy for the borrower to find him or herself in an even worse financial situation.



So, how can debt consolidation loans provide a lifeline and what goes wrong with that potentially very useful product? The lifeline comes in the shape of helping those who have accumulated debts from a variety of sources, which are likely to include relatively interest-expensive, shorter-term unsecured personal loans and credit card balances.

Especially in today's climate of the rising costs of living, some borrowers can find that such a spread of debts can easily get out of control. Debt consolidation allows such borrowers to repay all of those debts with one new loan. If the new loan is secured against the borrower's home and spread over a greater number of years, the overall rate of interest can be lowered and, because it is being paid over a longer period, the monthly repayments can be significantly reduced. In this way, previously unmanageable debts can once again be brought under control with the lifeline thrown by the debt consolidation loan.

A number of things can go wrong with this otherwise very useful solution however. There are certainly less scrupulous lenders around who will not only fail fully to explain how the debt consolidation process works, but also charge an inordinately high rate of interest on the loan. In some cases, the borrower will make his or her financial situation more difficult by regarding the debt consolidation loan, and the lower monthly repayments, as a quick-fix solution and a green-light for taking on still further personal loans and credit. The new debts then pile on top of the continuing repayments due on the debt consolidation loan and the borrower finds that they are even worse trouble than before. In the very worst cases, the borrower could be forced into the unhappy realisation that by putting it forward as the security for the loan, his or her very home is now at risk.

It goes to show how important it is to arrange such a loan (or indeed any loan) with your eyes fully wide open to all of the implications. Debt consolidation loans are a serious business and, especially if the home is being put at risk in order to secure the loan, should not be undertaken lightly. They can prove an indispensable aid to recovering from debt problems that are getting out of hand, but only if the borrower is serious about retaking control over their finances.

As with any other product, you will want to find out exactly what it will be costing you before you agree a debt consolidation loan and, to help you with this, there are any number of online loan calculators that will help you to work out those costs, both in terms of the monthly repayments and the amount of interest you will have paid over the whole of the period.