- 15
- Mar
In today’s credit markets, loans have become relatively hard to find as well as more expensive. While they are still available, many people are discovering they can’t find a loan charging the kind of interest rates we were used to seeing a year or two ago.
Under these conditions, does debt consolidation still make sense? If the loan you’d use to consolidate your debts would charge more interest than you expected, is it still worth it?
As always, there’s no single answer to this question, as it depends on so many different factors: your financial situation, your attitude to credit, your track record with debt repayments, your ability to trust yourself with credit cards and other forms of credit - to name just a few.
But here are two points to consider:
Interest rates aren’t the only reason to consolidate
Debt consolidation can be a good way to reduce the interest rates you’re paying on your debts, but that’s not the only reason so many people choose to consolidate their debts.
There’s also simplicity: repaying one debt is a lot easier than repaying multiple debts. That means less paperwork, less time spent reading statements - and more chance of remembering to make every debt payment on time.
Then there’s affordability: consolidating all your unsecured debt can give you a chance to re-think the rate at which you’re going to pay it back. If you’ve had problems keeping up with your debt repayments, a consolidation loan could be the ideal opportunity to reduce your monthly payments by arranging to repay the loan over a longer period of time. (Note, though, that doing this would probably increase the overall amount you’ll repay, as your debt will spend longer accruing interest.)
In other words, consolidating your debts can make it much easier to make sure you make your payments on time - an important issue, since making payments late (or not at all) can lead to fines, damage to your credit rating and even legal problems.
Loan rates aren’t the only rates going up
Loans aren’t the only type of credit that isn’t as cheap as it used to be. Overdrafts, credit cards, store cards - most of the types of debt that people tend to consolidate are also more expensive.
What’s more, most of these debts will be SVR (standard variable rate), which means they can change over time. So it’s not just new borrowers who are paying the higher rates - the card / overdraft you’ve had for years could be a lot more expensive than it was when you first started using it.
Get more debt advice and information about debt consolidation loans at DebtAdvisersDirect.co.uk