The Benefits of Consolidation Loans

With UK consumer debt reaching unprecedented levels, many are seeking ways to help reduce their debts.

Record levels of UK credit card spending are resulting in many household budgets being under increased strain. Credit card debt especially means personal unsecured debt being subject to high interest rates.

Many UK consumers turn to consolidation loans to pay off their various debts such as credit cards and store cards, for example, but fall into the trap of accruing other debt afterwards thus defeating the purpose of the consolidation loan.

The many benefits of a consolidation loan can only be enjoyed if one exercises discipline with future spending and credit habits. This includes not taking on any further debt.

Consumers who have various unsecured debt, such as credit cards, catalogues etc struggle with the high rates of interest these debts accrue. Debts on credit cards interest rates of anything between 15-22% for purchases.

Some of the benefits of a consolidation loan are:

• Clearing outstanding debt to various creditors
• Reducing interest that debts are accruing
• One monthly payment rather than many small monthly payments that have to be paid at various dates throughout the month, thus making it easier to budget for the month.
• Consolidation loans tend to charge far lower rates of interest than other forms of unsecured credit, saving the consumer a significant amount of money over the long run.
• Can help reduce the chances of defaulting on debt repayments, which can adversely affect your credit rating.

Whilst these type of unsecured loans can help consumers reduce the levels of interest they will owe on their debt, it’s vitally important that no other debt is taken out or else it’s back to square one. Financial discipline is the only way to reap the benefits of consolidating one’s debts.

Alisdair Milton
6th January 2007

 

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