While debts consolidation has its advantages, it also got its pitfalls if not handled carefully. The trick to sussing them out is to focus on what you can’t see straight away.

There can be lots of one-off fees involved both in taking out the new loan and in winding up the old ones. This can make things a little harder just to start with. Many companies will try and heap hidden charges on top of what you think you are paying.

If you read newspapers everyday, you will have seen those ads that loan shark companies put on. There is a reason they are known as loan sharks and not loan puppies. Many of their customers would tell you that they are not cute, loyal or cuddly. If they give you a hefty payout, then there will not be money left over for a holiday or a bit to put by for the kids.

The loan sharks’ interest rates are often frighteningly high. Have a look at that very small print that flashes across the screen for the minimum legal number of seconds just before the end of the advert.

It will tell you the estimated growth of an average loan when paid back over a standard number of years, and it does not make happy reading.  Their objective is to trick you into borrowing as much money as possible and then milk you as their cash cow for the rest of your natural days.

One particularly sneaky dog to look out for is something called PPI. This stand for Payment Protection Insurance, and is often popped on top of your bills without you realizing it. PPI means that if for some reason (redundancy or prolonged illness being common ones) you can’t keep up with your payments, then they should be covered by the company for an agreed period.

Paying something back over a long period of time has its down-sides. Though it might offers you a little relief in the short term, making smaller payments over a larger number of years can mean that even at a lower rate you end up paying back far more than you previously owed. The faster you can pay off your loan, the slower it will grow and the less you will eventually repay.

If you have gone for a secured loan then you have got the best rates but you have also raised the stakes. Since it’s usually your home you put up as collateral, the consequences of not keeping up your payments are more extreme. It’s a big step. Having said that, you are using your capital to maximize your potential to paying off your debts, not throwing your house keys onto the table in a game of poker. There’s nothing to fear if you have thought everything through carefully.

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