In a scenario of global credit crunch and rising interest rates, people with a number of loans and debts with different lenders might find they are struggling to pay what they owe each month. According to a recent survey, nearly half of the loans taken out this year are for consolidation purpose rather than holidays or home improvement. Debt consolidation allows people with a variety of credit agreements to ’consolidate’ the total debt burden into a single loan, repayable over an extended time period. This process is generally associated with a loan secured against your property.



The interest rate charged by these loans is usually significantly lower than the rate charged on credit card balances, but the sting in the tail is that because the loans are taken out over a longer time period. Due to longer repayment tenure you may end up paying more interest overall.





Most of the loans available in the UK loan market to consolidate the debts are offered to people who own their own homes and so are often referred to as ’homeowner’ loans or ’secured’ loan plans. This means that the loan is secured against your home and if you cannot repay it back your property may be in danger of being repossessed by the lender. With unsecured loan plans, such as personal loans and credit cards, lenders have no such security and so charge higher rates from the borrower. Loans to consolidate the debts can be suitable in certain circumstances. For example, they charge lower rates than unsecured loans, which could result in having to pay less each month as installment. These loans can also offer longer repayment periods than unsecured loans up to 25 years. You can normally borrow more money, up to 250,000 compared to 25,000 with an unsecured loan plan.



Secured loans to consolidate the debts can help you get back on top of your finances. These loan plans are equally suitable for people for whom re-mortgaging would mean paying early redemption penalties or who have adverse credit scores and so would need to apply for a more expensive sub-prime mortgage.



Anyone who is in debt crisis should go to seek help from one of the free debt management services like the Consumer Credit Counselling Service, National Debtline or the Citizens Advice Bureau. These non profit organisations can help you assess your financial problems and advise on the best course of action for them. They may also help you work out a monthly budget that enables you to pay back your debts as quickly as possible. If, after assessing your financial situation, you feel that some kind of loan is the best option for you, there are a number of alternatives available in the UK loan market. Besides banks and building societies, there are a raft of online loan companies on the market, Online lenders offer borrowers a comparatively lower interest rate. So it’s a good idea to shop around before opting for loans to consolidate debt