Weve all seen the well presented ads, the ones that tell us that our financial troubles are over, and that a quick and simple loan is all it takes. We can have low monthly repayments, and more of our take-home pay for ourselves. They arent exactly lining, but they certainly dont tell the whole truth. Lets look a little closer.



There are two types of people who take out a debt consolidation loan, the first is the most rare, only one in five people fit into this group. These are the people who use a debt consolidation loan wisely and are able to move on. These people realise that spiralling debt is a bad idea and they got into this position either through financial mismanagement or at the least not paying enough attention. These people have a plan of action for either increasing their income or reducing their expenditure and they need a debt consolidation loan in order to get them out of a financial hole they are in. These people will pay off the debt consolidation loan without taking out more loans and more credit cards they will use the experience of having a debt consolidation loan as a wake-up call and sort out their financial life.

Unfortunately the second type of person is far more common and its also the place that most people will deny being in. Thats okay youre reading this you dont have to admit to anybody else that there is a problem but please dont fool yourself. Are you struggling with your finances? Are you spending more than you have coming in? The automatic denials may be already springing to your lips but please look clearly. Living is expensive and getting more expensive every day, yes everyone deserves more than a basic standard of living, they deserve more than to just exist. However, and this is a big however a debt consolidation loan will only make a difference for a few months, if you continue to spend at your existing rate than the problems would just come back. And if youve taken out a debt consolidation loan secured on your home then you may lose it.

Four out of five people who take on a debt consolidation loan dont learn their lessons, they take on more debt, and end up in a financial hole that they cant get out of without drastic measures, measures such as losing their home, or bankrupt. This is why debt consolidation loans are discouraged so vigorously, its like treating a broken arm with an Elastoplast and asprin.

I do hope thats frightened you, because if youre thinking of a debt consolidation loan you need to be frightened, you need to know how much of a problem you have, and you need something to frighten or shock or whatever it takes to get you to sort your financial life out.

So lets look at debt consolidation loans in a little more detail.

A debt consolidation loan is used to pay off a number of smaller debts and roll them into one big debt. It looks easy because the one big debt may have a lower interest rate than some of the smaller debts (and thats supposed to be good isnt it?) And the repayments will be lower, so it looks like a sensible option. But there are two not so good reasons for this.

*A debt consolidation loan is usually a secured loan, in other words if you dont pay your debt consolidation loan then the people who lent it to you can repossess your home. Think about that for a moment youre swapping unsecured debts, ones where the worst thing that can happen is that you go to court and have to pay money for a long time, for a secured debt, one where you can lose your home. As the lender has the security they can afford to offer you a lower interest rate because they know they will definitely get their money back.

*A debt consolidation loan is also over a longer period of time. You may be swapping a credit card debt which will only take you a couple of years to pay back for a debt that could last as long as your mortgage. Because of the length of this alone you will actually pay a lot more in interest. Its quite common for you to end up paying more interest in a debt consolidation loan than the original debt!

I hope by now you are rethinking the idea of a debt consolidation loan. Please seek the advice and services of your local free advice centre, they will have experts in debt and finance, they may be able to negotiate with creditors and reduce your debts. They will certainly be able to offer you personnel advice and confirm if a debt consolidation loan really is the only option for you.

If you still feel a debt consolidation loan really is the only way to go then here is some advice on how to make the best of it.

The first thing to do is analyse why you need this loan, how youre going to pay it back, and most importantly how you are going to change your financial habits so that youre never in this position again. There are lots of resources on how to live and more frugal life, how to increase your income, or how to reduce your expenditure. Take advantage of them and make a plan. The people who have this plan and are serious about sorting out their finances are the people who do best.

The second thing to do is to shop around. Get a number of quotes, and checked the details of the loan agreements. You want to be aware of things like early redemption penalties, and if youre able to overpay and therefore shorten the length of the loan.

Please make the right choice about a debt consolidation loan, and proceed cautiously.

Good luck!