Property Rescue Blog

Britain’s spiralling debt crisis has led to a sharp increase in the amount of people taking out debt consolidation loans as a way of dealing with financial strife.

The lure of a single monthly payment and a lower interest rate has been too strong for many. On the surface, the benefits are obvious. Although the covering loan tends to be significantly higher than the amount needed for repayment, it usually has a fixed, lower interest rate. The pressures of keeping track of multiple creditors is also relieved by providing the debtor with a single debt source.

But if you dig a little deeper, the full extent of the dangers of debt consolidation become apparent. Many people are tempted into consolidating unsecured debt into secured debt, usually against their home. The loan is usually significantly higher than the debt, which means that failure to pay off the full amount puts the debtors home at risk. Far from dealing with the source of the debtors financial problems, debt consolidation loans only deal with the symptoms. In addition to a large repayment amount, many people are coerced into PPI (Payment Protection Interest), scaremongered into believing that this will aid them in the long term. In 2004 Lloyds TSB had their knuckle rapped by the Banking Code for allowing a man to accumulate £6,000 (a fifth of his final loan) in PPI
 
Before deciding upon a debt consolidation loan, make sure that you do your research into all of your available options. Banks will usually offer a payment plan to those in financial difficulties. This will freeze the debt but severely hamper the debtors credit rating. The debtor will also be prohibited from taking out any further credit form any source.

Sell and rent back is also an option. Although there is likely to be a noteworthy discount on the property’s true market value, there is the luxury of being able to stay in your own home whilst sorting out your finances. There will usually be a buy back option available in the agreement, which allows the client to purchase their house at the rate of the new mortgage. The real advantage of sell and rent back is that it negates the usual peripheral problems of raising capital via a house sale. As their is the option to stay on as a tenant, there will be no need to look for a new home, change schools for any children or even search for a new job.