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Can I use a personal loan to replace existing debt?
Most of us have seen adverts on the TV or in newspapers that promise to "consolidating all
of your debt into in one manageable monthly sum". Although such an offer may seem like the
perfect solution for people with existing debt, this form of arrangement may not be a good as
the advert may suggest. Accordingly, you should consider the terms of any such loan very carefully.
Normally, for the new lender to be able to offer a large reduction in the repayments required
from you they simply bundle together all your outstanding debt and replace it with one new loan.
The reduction in your monthly payments is achieved by arranging for the new loan to be repaid
over a longer timescale than the existing debt. This is the principal reason why the regular
payments will appear lower than was the case under your previous commitments.
So although it might be suitable for you to "consolidate" all your debt into one new loan
this sort of arrangement needs careful consideration before you proceed. You may find that
you are required to convert your debt into a single secured loan. As is the case with any
financial commitment care must be exercised. If you are in any doubt you should seek advice
from a professional or perhaps talk to the staff at your local Citizen's Advice Bureau.
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