Debt Consolidation Loans

Most people nowadays have taken advantage of credit cards and store cards, with every intention of quickly paying them off, only to find that other bills arrive putting paid to to the good intention of clearing them. Still, there is always next month, but then the car breaks down, or holidays come around and then before you know it, it's Christmas and the debts increase instead of decrease.

All of a sudden, your credit repayments are eating up your monthly salary.

Don't despair as there is light at the end of the tunnel.

Let's take a look at how loan consolidation could help to free up cash with a fictional example, where Mr and Mrs Hardup are looking at how they can save some money, and possibly free up some cash as they need a new car.

Existing Credit Commitments

Credit Card 1 £6,500 paying £165.40 a month mainly just the interest

Credit Card 2 £5,400 paying £126.56 a month mainly just the interest

Personal Loan £4,000 paying £105.72 a month interest & capital

This adds up to a total debt of £15,900 and they are paying £397.68 a month.

The Hardups have 2 credit cards and their monthly repayments are really only just paying off the interest accrued each month. At that rate, they will probably never clear the credit card debt. Interest on most standard credit cards is currently around 16.9% APR, which is a very expensive form of credit.

OK let's see what they could save:-

Example 1

They take out a cheap debt consolidation loan just to refinance their existing debts.

New Loan £15,900
Term of Loan 120 months
APR 8.4%

One new monthly repayment £193.69

Current monthly repayments £397.68
New monthly repayment £193.69

Monthly Saving £203.99

So by consolidating their debts, they have an increase in monthly disposable income of £203.99 each month. That's £2447.88 a year!

For someone earning £25,000 a year, that would almost be a 10% pay rise. In fact, when you realise that this is after you have paid tax and national insurance, it is nearer to a 15% pay rise. Try asking your boss for that next time you see him!

Example 2

As well as refinancing their debts, they take out £7,600 for the new car.

New Loan £22,500
Term of Loan 120 months
APR 6.6%

One new monthly repayment £254.44

Current monthly repayments £397.68
New monthly repayment £254.44

Monthly Saving £143.24

So in this instance, not only do they now have a new car, but they are still paying £143.24 less than they were with their existing credit commitments.

With either option, the Hardups are better off financially by having more disposable income each month. They also know that the loan has a defined term, so unlike the credit cards, they know that it will be paid off. They also benefit from the interest rate being half that of the credit cards.

Why not see how much you could save? Here is a link to a loan calculator where you can enter all your credit commitments and see just how much you could save by consolidating your loans and credit cards with a cheap debt consolidation loan..

Visit the Loan Arrangers website for Consolidation Loans