Be aware of the fact that a lower rate does not always indicate a lower cost. When it comes to a debt consolidation loan, there are a number of factors that combine themselves to calculate the total cost. For example, in addition to APR (Annualised Percentage Rate), you should consider the additional borrowing costs (often stated somewhere within the small print section). The additional costs may be high enough to make the whole debt consolidation loan not as cheap as you thought. Typical examples of these additional costs are the - Payment protection schemes;
- Arrangement fees;
- Pre-payment penalities and
- Putting another bureaucratic entity between you and your creditors.
Debt consolidation can be used to clear up debts incurred by a borrower in different formats, be it credit card debts, other borrowings, other debts etc; these can all be put together into a single loan normally with a reduced monthly payment. This reduces the problems of organising the many different payments each month, and may save you money as well as time if you get a good rate. Before signing anything, find out exactly what would happen in a situation where you are able to pay off your debt consolidation loan earlier than expected. The terms of the lenders may be different to whatever you are expecting. Find the debt consolidation loan that offers the amount you require, at competitive rate of interest and over the term that you would like to spread the payment, with low arrangement costs. In case you are having problems with your debt consolidation loan, inform your lender as soon as possible. The earlier you tell them, the more sympathetic the lender will be to such problems making the necessary arrangements for under repayments until you retake your financial stability. If you are uncertain in any area of the policy or contract you are about to sign, ask your debt consolidation lender or contact the DTI's Consumer and Competition Policy Directorate. They know all the policies and information within UK Government on consumer and competition policy issues. Enquiry Unit phone 020 7215-5000 or via email: dti. enquiries @ dti.gsi.gov.uk | 
