Is it a good idea to consolidate debts with a loan?

Debt has a nasty habit of running away with us, and it is all too easy to find, one day, that we are spending every spare penny on interest simply to keep our debt at the same scarily high level without ever reducing it. This can happen when credit card providers increase limits when you take on an extra card because it is offered, or if you have one or two – perhaps three or four – credit accounts with online shopping sites. Suddenly all this largesse gets on top of us, and we begin to sweat about how much we owe.

Consolidating all that debt – i.e. rolling all those owed amounts into one large sum which is still often very much lower than the total of all the individual amounts we are currently paying, is a tempting, and sometimes a very sensible, prospect. The right debt consolidation loan could save you a lot of money and make managing your monthly repayments easier. source – Growing Power.

Not only will this clear all our accounts and credit cards in one fell swoop, but it will also leave us with more money to spend on the things that we need to live comfortably – perhaps even allowing for some saving!

If you can do it yourself, by taking out a loan with a reputable bank or similar institution, then this is the best way to go. There are some points to take into account when choosing a loan:

How much will you repay?

Look at the monthly repayment figure, certainly, but also keep an eye on the APR – if it goes too high, you might end up repaying the loan for longer than you would like to, especially if interest is added on an ongoing basis, rather than calculated up-front and applied to the loan amount as a one-time charge. Ensure that you are comfortable with both the monthly amount, and the total length of the time that the loan will run, taking into account any changes in your circumstances, a child coming of age and needing a special holiday or present, for example, a retirement by which time the loan must be done, and so on.

Are there any penalties

Make sure you know what will happen if you make a payment late, or do not have sufficient funds on the day the payment is due. If the penalty is significant or will otherwise blemish your credit rating, then make sure that you make a plan to cover the payment rather than risk your financial credibility over a temporary cash-flow blip.

Understand how the loan works, as mentioned above, so you are aware if interest will go on to negate a certain amount of each repayment, or not. The fine print is quite dull, but it is important, so do take the time you need to read through the whole document before you sign it.

Pay off all accounts in full

Once you have secured approval for your consolidation loan, you should note the amounts owed on all your accounts. Take your time over drawing up the list to ensure that you do not accidentally leave any accounts off the list. Then, phone or email each and every company asking them for a settlement amount. This will be the full amount owed including any interest already accrued, but not yet charged onto your total.

If the loan will take a little time to come through to your bank account, make sure you ask if the settlement figure will still be valid at that time. There is little more frustrating than thinking you have cleared an account, only to find an interest charge popping up on the next statement. If this does happen for any reason, make sure you pay it off as soon as possible – but it is far better to avoid such annoyances if possible.

avoid temptation!

Once your credit cards are all paid off, and those online shopping accounts have large balances available to spend on them again, it is shockingly easy to be tempted into buying a couple of things here, and an outfit or two there – but resist this temptation!

If you genuinely need items, include them in your budget for the following month and pay cash. If you like to use a credit card for the extra layer of protection, do so, but then pay off the card immediately, or before you are charged any interest for using it – this way you will get the best of both worlds: protection for your shopping and no interest to pay.

To summarise, using a loan to consolidate your debt can be an excellent way to manage your finances, but you must, at the same time, re-educate yourself about your spending so that you do not end up in an even worse situation: maxed out accounts and cards and now a loan to pay off too! Do some online research, speak to your loan provider about money-management classes or online courses that you can take – or simply work out your monthly income and ensure you live well within those means. Debt can be reduced and managed, it can be a long hard slog – but it is definitely worth it!

How much difference does a large mortgage deposit make?

If you’re looking to buy a property, it can be easy to become caught up in discussions about deposits. If you have a large amount of money to put down as a deposit, you are likely to benefit from this. However, those putting down a deposit of just 5 percent will also be eligible for certain mortgages. This article will discuss how much of a difference the value of your deposit makes to your overall mortgage experience.

What do we mean by a large deposit?

Generally, a deposit of 25 percent would be considered a large deposit when it comes to buying property. This would mean a loan to value (LTV) of 75 percent, which is usually where the best mortgage rates lay. Most lenders require buyers to put down a deposit of at least 5%, but this does often mean that they’re ineligible for mortgages with more competitive interest rates.

Why would you put down a large deposit?

A large deposit, in short, can mean that you’ll be eligible for mortgages with lower interest rates, or shorter mortgage commitment. If you want to own your home after paying mortgage payments for just 10-15 years, then a large deposit will almost always be required.

What is the standard deposit?

A deposit of 10 percent is usually recommended to be eligible for reasonable rates from most mortgage providers. Most people consider 10 percent to be the standard deposit amount when buying a home. However, it can be difficult for many people to find this amount of money to put down as a deposit, which is why 5 percent deposit mortgages are becoming more common.

Will I be eligible for all mortgages if I have a large deposit?

Requirements vary depending on lenders, but a larger deposit will usually give you more opportunities to access competitive rates. This isn’t always the case though, as mortgage eligibility isn’t based solely on the down payment amount. Lenders take several factors into consideration before offering a mortgage to an individual or couple, this includes your credit rating, salary, and ability to pay back the monthly amount required and, in some cases, your age. If you already have outstanding debts when applying for a mortgage, a lender may be less likely to offer a mortgage to you. Therefore, it’s usually a good idea to clear as much pre-existing debt as possible before applying for a mortgage. Some lenders will still offer a mortgage to you if you have pre-existing debt, but your interest rate may suffer because of this.

The type of property can also have an impact on whether or not you’ll be eligible for a mortgage with a large deposit. Some properties that may not be considered “standard” (e.g bricks and mortar) may be more difficult to obtain a mortgage on. Some lenders may not offer mortgages on properties with thatched roofs or timber frames and you may be required to go to a specialist lender, even if you do have a large deposit.

Will I definitely get better rates with a larger deposit?

Most lenders work on the basis of LTV and calculate interest rates based on this. Interest rates are usually tiered depending on the LTV, which means that the larger the deposit is, the better the interest rate will be. The LTV works on the premise that the lower the value of the loan is on the property, the less risk there will be for the mortgage provider. This is because you’ll have more equity with a larger deposit and the mortgage provider will be less-effected if the property loses market value. As a general rule, those that have a larger deposit are more attractive to mortgage providers, especially if they meet other criteria such as consistent salaries, less pre-existing debts, and a good credit score.

A larger deposit can lower your monthly mortgage payments

If you aren’t worried about owning your home in a shorter space of time and reducing the time it will take to pay off your mortgage, a larger deposit can be a great way to reduce your monthly mortgage payments. For example, if you take out a mortgage on a £200,000 property with a 10% deposit at a 3 percent interest rate, your monthly payment would be £853.58 compared to £758.74 if you were to put down a 20 percent deposit. This means you’ll save nearly £100 per month by opting to put down a larger deposit.

Large deposits and low income

As mortgages are offered based on a number of factors, with the main one being your income, sometimes a large deposit isn’t always enough. Lenders need to be reassured that borrowers can meet their mortgage payments and salary is a big factor in this. However, there are certain things that may be taken into account if your income is low such as personal assets, benefits, stocks and shares and additions to your salary such as overtime or commission bonuses.

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