Debt Consolidation

Borrowing more money simply to get out of debt is not always the best option as it could burden you with even greater debts. The first law of borrowing is: "The more you borrow, the more you'll pay back." Therefore, it is sensible to borrow as little as you can - and pay back your debt as quickly as possible. Make sure that you can comfortably afford your monthly repayments. If you do borrow a little extra to pay a few treats, it could cost you in the long term.

Increasing a mortgage may be appropriate for some people who feel they need a simplified long-term repayment approach, but it will almost certainly come at the cost of more interest payments.

The benefits of consolidation
The potential advantages of debt consolidation over multiple credit agreements can be:
• Lower interest rates
• Lower monthly payments
• Having only one creditor to deal with

The disadvantages of consolidation
• There may be costs involved in setting up the new loan
• There may be costs involved in settling an existing loan, such as redemption penalties
• Debt consolidation loans often have lower monthly payments because the debt is spread over a longer period of time and because it may be secured on property, so lowering interest rates. However, you may end up paying more interest overall than with your original loan(s) – and, importantly, your home may be repossessed if you do not keep up the repayments

Other points
If possible, arrange a mortgage or loan that permits overpayments without any early repayment charges. Then, if you are able to pay more than the minimum monthly repayments, you can repay the extra amount borrowed more rapidly and you will save hundreds, if not thousands, of pounds in interest that would otherwise be paid to the lender. For example, assume you have been able to reduce your monthly repayments by say, £150; if you voluntarily overpay by say, £50 per month, you will still benefit by paying £100 less than before. However, the effect of these overpayments is that you will be able to repay the extra amount borrowed in just a few years and your mortgage debt will be back to the same position it would have been in if you hadn’t taken out the extra money. Our advisers will give you more information about this option.

There is no embarrassment in getting yourself in debt. You should not be ashamed. Many, many people are and have been in the same position. The sooner you face and deal with it the quicker you will be free from it. However, it is essential that you are fully honest and open about your debt. That way you can receive help to break the debt circle.

Please use the links below for more information about:

• Individual Voluntary Arrangement
• Bankruptcy

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