About Loans
These days you can walk into almost any high street bank or loan providers and get yourself a loan relatively easily. However, because loans and other forms of credit, such as credit cards, are so easy to get, they are easy way to get into debt or worsen your existing debt problems.
If used carefully, loans can help you manage your debt. However, loans are debts too, so need to be paid of themselves. If you know you can afford loan repayments, and have worked out when you can clear all your debts including any new loans, you can use a loan to manage your finances. However, never use a loan in desparation. You may find with your bills mounting, you want to borrow - it can seem like the only option until you get yourself back on track. But remember, the loan companies can demand their money back at any time, and if you start to fall behind with those payments, you're in a deeper hole than when you started. Furthermore the likelihood is that you will end up paying back much more than you originally owed.
"Debt doesn't happen overnight. It's a long and anguish-inducing chain of calamitous events over which you have little control. My debts were the first thing I thought about when I woke in the morning and the last thing on my mind before I fell asleep," says Jane Preson in the Evening Standard.
Don't let that happen to you. If borrowing seems like the best course of action (after evaluating other debt solutions, from working out more reasonable repayments with the lender to administration orders and other solutions) then make sure you are in control of your borrowing. Click here to learn more about saving and borrowing.
Consolidation loans
A consolidation loan gives you the chance to lump together all of your existing debts and make one repayment each month to pay them all off. The money you owe hasn’t gone away – it is just in a different place. Quite often, the repayments on your consolidation loan can be lower than all your other payments added together, but you need to check what the interest rates are, how long you will be paying back for and what the total debt will therefore be. (By giving you a more manageable repayment amount, those lending you a consolidation loan will usually want more from you in the long run, so you'll probably end up paying back more in the long-term or taking longer to clear the debts).
Click here to find out why a consolidation loan might not be the answer.
Calculating What You Will Repay
Remember, when you borrow money in the form of a loan, you will have to pay back the amount you borrowed AND interest. This is something most of us never really look at properly when signing up for a loan. We just look at the monthly amount, see if we can afford it, sign the paper and take the money. What we should look at is how much we will be repaying back overall.
A quick and simple way to find out the total cost of the loan (what your borrowing will cost you) is to take the monthly repayment amount and multiply it by the number of months the payment must be made. The results might give you quite a shock, as the following example reveals:
You owe £8,000 to various lenders. You take out a consolidation loan of £10,000 to pay these off and give you a little extra in case you need it. The terms of the loan were as follows:
Monthly repayment of £208.13 for 60 months. This equates to a total repayment of £12,480. You now owe £12,480 instead of the original £8,000 or the £10,000 you were borrowing. By taking this loan you will have spent an extra £4,480 in 5 years time, on repayments.
So what other debt solutions are there?
Click here to find out about debt solutions.
Debt Solutions: Informal Debt Consolidation
Debt Solutions: Informal Debt Consolidation: Informal Debt Consolidation
Debt Solutions: Informal Debt Consolidation: About Loans
Debt Solutions: Informal Debt Consolidation: Debt consolidation loans: what you should know
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you which solution is best for you
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