Loans - Using a Loan to Control your Debt
If you feel you are unable to keep up with repayments to all your creditors one solution maybe to take up a loan. The idea behind this is that you simply have one loan and one creditor. Your monthly loan repayment may be lower than the sum you are currently paying to all your creditors. However, repayments will last for a much longer period. You must also consider the interest rate on the loan and take this into account when considering your monthly repayments.
Be careful of low introductory rates on loans that jump up after a period of time. There are sometimes penalties for early completion of a credit agreement on your loan. Make sure you ask for a settlement figure from your creditors rather than a loan balance.
Other things that you should be aware of is that if you take out a loan that is secured on your house and cannot keep up repayments you may also put your home in jeopardy. Also you will be paying more money over a longer period on your loan. If your interest is fixed on your original debt at the beginning of your term you may in effect be paying interest twice (that of your origional debt + that of your loan).
However there are many advantages to taking out a loan to cover your debt. The interest fees on your loan are often less than the total finance charges of other debts. You may be able to reduce your monthly payments making your budget seem realistic. You also have the added advantage of only having one creditor to deal with your loan. However it is imperative that once you have taken out this loan you do not take on any more debt.
There are a few different types of loan available.
- A debt consolidation loan
- unsecured loans
- secured loans
- re-mortgaging your home
More will be explained about each type of loan later
Whichever loan you go for it is always wise to shop around, as there are many packages on offer.
Once you have established how much you owe and the potential monthly cost of your debt and the monthly repayments on the loan, look at your budget plan, this way you will be in a clear position to see exactly how much you can afford to pay each month.
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