Debt Consolidation

With the general economy not looking much better than a year ago family budgets look set to be stretched as inflation rises and wage rises stagnate.

So it is not surprising that many families are looking at ways to save money and offset rising costs in every way they can.

Although property prices rose slightly throughout 2010, the market has once again stalled. But at least those who have owned their home for a few years should still have some spare equity available to look at raising low cost loans should they need so though a second mortgage.

But for many it is the pressure of existing loans that is to the fore. Loans entered into during the heady days of the early 200`s or accumulated credit card debt may now weigh heavily as wage rises fail to keep up with the cost of living.

Debt consolidation may still be a good option for many looking to reduce their monthly outgoings. It may seem odd, at first, to solve a debt problem by borrowing more money but the key lies in the way that it is borrowed and how the proceeds are then used.

Those with a good credit history and some proof of earnings can still apply for a debt consolidation loan. This way, the prospective lender can see that the purpose of the loan is to pay off other debts with the aim of reducing your monthly net payments.

The key is to analyse the existing debts and select the ones with the highest monthly payment and the ones with the highest interest rate charged. By taking out a new loan with a long repayment period and at a lower interest rate it should be possible to reduce the net monthly cash drain.

This approach may also work for those with a less than perfect credit history. Although the terms of the consolidation loan may not be as attractive it could still make financial sense to see what can be achieved.

For those with equity in the home it could be a sensible move to look at remortgaging whilst interest rates are still low. Whilst the lowest rates have perhaps gone, the bleak economic outlook means that the current range of rates will continue for some months meaning that switching to a new provider may bring some benefits.

Secured lending, such as a mortgage, is typically one of the cheapest ways to borrow but is only available for larger amounts. There are also additional costs to be incurred such as property valuation fees and administrative costs but given the long term nature of the borrowing it can still be a good option to consider as a way of freeing up equity.

One of the best ways to get an indication of what could be achieved is to use an online mortgage calculator to assess the options. These useful tools can quickly give an indication of the payment that would result from applying for a new loan this way. But whatever route is chosen, now could be a good time to act and before any debt problems really adversely impact any credit history.

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