Debt Consolidation Loans

For years prior to the credit crunch a lot of people spent freely on credit cards and other unsecured lending, and then when payments became too high to manage comfortably, they reduced them through a debt consolidation loan.

What is a debt consolidation loan?

Well a debt consolidation loan is basically where you take out one loan to clear all outstanding debts, thereby simplifying the payment process as you will only have a single payment to make each month, and at the same time reducing the amount you have to pay.

The problem is that in the current market in order to borrow any significant amount of money, you need to own a property. Even if a lender is prepared to lend on an unsecured basis they will only do so if you have a property. This is because if you default on the loan they will apply to take out a second charge on your property, effectively securing it anyway.

The second issue is that the maximum any lender will currently lend is 85% of the value of the property in question. Bearing in mind that a lot of people will have taken out 95% mortgages and in some cases even 100% plus mortgages, and that since then the value of property has actually reduced, many people are either in a negative equity situation, or do not have sufficient equity available, to take out another loan to consolidate their debts.

This means that more and more people are having to turn to debt management solutions to solve their financial problems.