Cheap way of consolidating debts
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Remortgage rates may be attractive, but pay attention to arrangement fees and other costs.If you can find the right credit card and manage it responsibly it could be an attractive alternative to a loan.
If you have debt and savings it's almost always the case that you're paying a higher rate of interest on the money you owe than you're getting paid on the money you're in credit.It's always a good idea to have an emergency savings pot topped up to a level you're comfortable with, but beyond that it's worth thinking about using your savings to repay debt.In many ways a mortgage can be seen as the ultimate form of secured loan, so if you're considering remortgaging to consolidate debt again remember that you're putting your home at risk if you can't meet the repayments.What's more, if you apply for a loan that you find appealing and get rejected, this will leave a mark on credit files and lenders may use this to lower your credit scores further.That's why it makes sense to make a soft search (which may be referred to as a 'smart search') for loans before applying.Compare that to a credit card or personal loan with an APR of 16% over three years.
Then your monthly repayments would be £351.57 and you'd pay £2,656.53 in interest over that shorter time.The logic behind debt consolidation loans may seem sound and this type of borrowing can make great practical sense, but you need to beware of the pitfalls that could make it go very wrong. Small loans, payday loans, overdrafts, store and credit card deficits can all charge extraordinarily high rates of interest, while the very best rates are usually only available on bigger loans.This means that combining all your debt into one consolidation loan could reduce the overall rate you pay, and possibly reduce the overall amount even if you pay over an extended term.Don't rule out unsecured loans - if the amount you owe is less than about £25,000, unsecured personal loan products may be a better option and many allow debt consolidation.Of the 126 unsecured personal loans analysed on Defaqto in December 2014, 83% allowed the loan to be used to consolidate debt.Before consolidating, you should note that some lenders may charge exit fees or early redemption charges if you repay ahead of schedule.