Debt Consolidation Loans
If you’ve got multiple debts that you are currently paying off then you might want to consider taking out a debt consolidation loan in order to simplify, and in some cases reduce, repayments.
We’ll explain exactly what debt consolidation loans are, how they work and whether or not taking one out is the best solution for you over the course of this article.
In this guide:
What is debt consolidation and how does it work?
As the name suggests, debt consolidation loans allow you to consolidate all of your existing debt repayments into one monthly payment plan, often at a reduced rate with a longer term.
The idea is that you take out one loan worth more than the sum of all of your existing loans, and then pay that off, using the money borrowed to pay off the previous debt.
You will often be able to opt for a reduced monthly payment plan, though doing so will mean that you ultimately pay more than you would otherwise due to interest accrued.
The main advantage of a debt consolidation loan is the convenience it affords you. Only having one monthly payment to meet means that you’re not juggling debt with various creditors and getting lost in a mountain of paperwork.
You’ll also be able to opt for a plan that involves you paying less each month than you were before which, if short term finances are an issue, could be of great help for you.
In some cases you’ll be able to reduce your monthly payments by as much as 75%, extending your loan term longer into the future and thereby giving you more time to sort out your finances if doing so is necessary.
It is important to note that if you do opt for a reduced payment plan, then you will end up paying back more overall due to the extra interest you’ll have to pay over the course of the extended term.
Depending on your credit rating, then you might find that the debt consolidation loan you apply for comes with sometimes prohibitively high interest rates.
It is also important that you remember that a debt consolidation loan is not a straightforward solution to your debt troubles, rather it is simply a way of simplifying the repayment process.
How do I get a debt consolidation loan?
If you want to take out a debt consolidation loan then all you need to do is find a lender willing to let you borrow an amount large enough to cover your existing debts. This may be a bank or building society, but there are also specialised debt consolidation firms that you can contact who offer specialised services.