Before Consolidation Loans UK Borrowers Should Know Their Debt
Saying that Britain is a nation of borrowers is about as insightful as saying football is the world's most popular sport. We are all familiar with the fact that the average Brit owes upwards of £17,000 – not counting mortgages. We owe this money on all sorts of credit instruments including personal loans, overdraft protection, and credit cards. It is no wonder that consolidation loans in the UK are so popular.
Before considering consolidation loans, UK borrowers should step back and assess their indebtedness. The purpose is simple. Before a borrower can truly know whether a consolidation loan is the best way to solve debt problems or not, the individual has to have a better understanding of what kind of debt he or she has and how much it costs him/her to service.
The Problem of Revolving Credit
It turns out that most of the indebtedness among Britons – again, not counting mortgages – is revolving debt. By this, we mean credit cards and bank overdraft protection. These types of credit instruments are called 'revolving' because they have no end date. Borrowers can borrow up to a certain amount before they reach their limit. But they do not have to completely pay off their debt to borrow again. If they make a £100 payment today, they can borrow that same amount of money again in the future.
A person who finds him/herself overwhelmed with revolving credit is a good candidate for a consolidation loan. Right from the start, the main benefit of a consolidation loan is that it is not revolving. It has a definite settlement date at which the debt it was taken out to cover is completely settled.
Consolidation Loans Solve Revolving Credit Problems
For the sake of argument, let us assume you have £10,000 in outstanding credit card and overdraft protection debt. As long as you keep paying the minimum monthly payments, you can keep borrowing and paying. Indeed, you could keep the cycle going until the day you die and never completely pay off what you owe.
Consolidation loans from UK lenders are remarkably different. You borrow a set amount with the understanding that you will repay a certain amount every month. You continue making payments until the end of the loan term, at which point you will own no more money. Your debt will be completely cleared.
Having a definite settlement date is key to solving debt problems related to revolving credit. Just the mere fact that a settlement date is set in stone changes a person's mindset about debt recovery. That's why so many financial experts recommend consolidation loans to solve problems with revolving credit.
Other Kinds of Credit Instruments
There are some consumers whose indebtedness is a combination of revolving credit, personal loans, car loans, etc. Not all these additional credit instruments should be consolidated into a single loan. For example, it doesn't make sense to use funds from a secured loan to pay off an existing car loan. Your car is a tangible piece of property in the same way your home is. As such, it provides its own security. Therefore, it makes no sense to offer your home as collateral for your car.
The long and short of it is this: consolidation loans are just one option for settling indebtedness. They may very well be the better choice in most cases, but it is still wise to sit down and assess one's level of indebtedness before taking out yet another loan. It is all about making wise financial decisions that will help you solve your financial problems once and for all.
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