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Debt consolidation loans, used properly, can be the solution to
a financial nightmare. If you have lots of different debts such
as loans, credit and store cars, HP etc, all paying varying
rates of interest, then a debt consolidation loan could be for
you.
These loans do exactly what it says on the tin – they
consolidate all your debts, and pay them off, leaving you with
just on monthly commitment to meet each month and, normally, at
a larger rate of interest.
The benefits are two fold =96 you pay less in interest overall
(for example, a typical loan is around 7=978% APR, while a credit
card is anything from 13% APR upwards) and you also have the
physiological benefit of knowing that just one payment has to
be serviced every month as opposed to worrying about paying
bits and pieces here and there.
That is how debt consolidation loans should be used. So that at
the end of the term, you have paid your debts off and are debt
free.
However, you do need to have financial determination and
restraint if this is the route you go down, as sadly many
people accumulate further debt. Many people pay off their
existing debts and replace it with a debt consolidation loan,
but still keep hold of their credit card `just in case’. Then,
before they know it, they have maxed it up to it’s limit and
are in an even worse financial position than before.
In fact, recent research from financial website Fool.co.uk
showed that three out of five consumers who do take out debt
consolidation loans end up even further debt.
And just a quarter of people actually clear their debts early
after having taken out a debt consolidation loan.
So, if you do take out a debt consolidation loan, cut up all
your credit cards, remove any authorised overdraft from your
bank account and don’t take out any further credit!
About The Author: Jason Hulott is Business Development Director
at homeowner loans service, PolarLoans
(http://www.polarloans.co.uk). Visit PolarLoans now for more
information about Homeowner and Secured Loans.
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