The number of people taking out bad credit or debt consolidation loans has increased, however it is generally believed that people are making mistakes with them.
Statistics are showing that 3 out of every 5 people taking these loans out go on to run up even more debt. Figures have been produced by Fool.co.uk.
Two out of three are given the opportunity to pay their loan off early, yet only 1 in 4 is able to achieve this.
Debt consolidation / bad credit loans are still a good idea for those who struggle to meet the demands of several debts all running concurrently, giving them the opportunity to pay just a reasonably set amount each month.
According to Fool’s head of personal finance, an alternative to this would be to ‘snowball’ your debts, which quite simply means prioritising your debts and concentrate on paying off your debts which carry the highest interest rates whilst keeping the others at bay by paying the minimum monthly amount due.
It is important that once your credit card debts have been cleared that you do not fall into the same scenario again. You must be strong and not give in to the wide variety of tempting offers that will once again come your way once you have cleared old debts.
Fool suggest the following tips when considering a debt consolidation loan:-
- Take a fixed-rate loan so you will always know EXACTLY how much your monthly repayments will be, thus you will never have an unexpected rise due to changes in interest rates.
- Choose a flexible loan, allowing you the opportunity to overpay when you can and/or pay the loan off early.
- Only select payment protection if you absolutely need it.
- Be careful with secured loans. Unless you are very disciplined in making your monthly repayments, you could risk your home.
- Only borrow the amount you truly need- not anything more.
- Refrain from using your credit cards any further until your consolidation loan is completely paid off.
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