A guide to personal debt consolidation

You may find that personal debt consolidation is right for you if you owe money to many creditors or the rate of interest you're paying is too high. Rather than making multiple payments on credit cards, loans, car finance and household bills, you'll make a single repayment to one lender on the date that you're paid. It has the potential to greatly simplify your family finances.

Personal Credit History

The cost of borrowing depends heavily upon your credit rating. If you've failed to comply with the terms of your credit agreements during the last 6 years, this will be reported to credit reference agencies. When a lender performs a credit search, this will reveal your past credit indiscretions. If you have bad credit, your credit consolidation loan will either be rejected or cost you more. It depends on the severity of the credit breach and whether or not you provide collateral.

Term of a Personal Consolidation Loan

The duration of a loan is likely to be decided by your personal circumstances. If you want to reduce your monthly repayments, extending the term makes things far more affordable for you. However, shortening the term reduces the amount of cumulative interest that you pay over the life of the loan.

Unsecured vs Secured Debt

Always think carefully before consolidating debt. Turning unsecured into secured debt gives the creditor greater powers to recover its money if you fail to comply with the terms of the agreement. If you take out a secured homeowner loan to put all of your debt under one roof and subsequently fail to make payment, you could find that your home is repossessed by the lender.

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