Debt
consolidation
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Consolidation
of debt or over spending potentially may be a very effective
way to reduce your monthly total payments where by you have
exchanged more expensive types of lending for example car
loans, credit cards, store cards, personnel loans and
overdrafts
all to one lender with a far lower interest rate. This would
normally be done by re mortgaging and raising capital to pay
off all the lenders in one go. Due to the recent large increase
in house prices more people have equity in their property
which they may wish to free up. Servicing your debts is simpler
and easier to control all under one lender. This can amount
to making huge monthly saving but caution should be taken
before consolidation as there are some potential drawbacks
that can be associated with consolidating these types of debts.
Debt
consolidation drawbacks (Equity release capital rising)
To place all this debt on to a residential mortgage would
mean converting shorter term unsecured debt into long term
secured debt. This would reduce the equity within the property
and weaken the borrowers position of financial stability because
if the borrow was struggling to service the debt they could
potentially lose their home. If they struggled to service
the unsecured debt they may not necessarily lose their home
be instead have an arrangement with the creditors to pay off
the debt over time on an agreed fixed monthly amount.
Caution
should be taken with consolidation as there may be high existing
penalties for redeeming the loan or debt early. Some people
have fallen into the trap of thinking that they can continually
borrow because of the rising equity in their property. This
is a dangerous habit, a borrower should never borrow more
than they can realistically afford. Financial discipline and
caution should be taken in order to control finances and obtain
sound money management.
The
borrower may only have a short time to pay off loans and credit
cards but consolidation would mean greatly extending the term.
And the longer a lender keeps a borrower within a lending
term the more money they will make from interest payments.
However this can be managed if the borrower makes regular
over payments and lump sum payments to reduce the term of
the loan, they will save money by reducing the total interest
paid. This will buffer to some degree the affect of extending
the term of originally unsecured debt.
The
following APR relates to the above products only.
THE OVERALL COST FOR COMPARISON IS :-
8.9%
APR
The actual rate available will depend upon your circumstances
ask for a personalised illustration. |
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