Who is debt consolidation for?
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Anyone can try to consolidate their debts, but it is not guaranteed to work and can be quite a daunting process. This is because you are trying to borrow more, and as such you will find that some creditors may not provide further credit because of your existing debts.
Debt consolidation can be a smart move, but it is not always possible.
Who is debt consolidation for?
If you've accumulated lots of different credit and/or loans and you're struggling to keep up with repayments, you can get one loan to consolidate them together to lower your monthly payments. You take out one loan to cover and pay all your current credit commitments and owe money to just the one lender, with just one monthly repayment.
You’re looking and will benefit from a lower interest rates on your credit cards and loans: if the interest rates on your current debt are high, then you can possibly save money by merging it all into a debt consolidation loan.
You struggle to manage the different repayment dates on your credit cards and loans: e.g. credit card due on the 10th, car loan comes out the 1st, loan repayment is on the 28th, 2nd credit card on the 25th and so on.. it's a bit of a headache managing the repayments on different dates. With a debt consolidation loan you roll all of those monthly charges into one payment that comes out on the same day every month.
What are types of Debt Consolidation Loans?
Consolidation loans are either secured (homeowner) or unsecured (Personal).
Personal loans: An unsecured loan is a loan where you do not risk your property and you do not need to be a homeowner. Additionally, it can be a much faster application process, e.g. in some circumstances you may be able to take the consolidation loan out the same day. However, the loan amounts available can be smaller and therefore, may not cover all your debt.
Homeowner loans: A secured consolidation loan can offer better rates, longer repayment terms and larger loan amounts. However, they are different type of loan as you could lose your home by not paying it back. Additionally, for legal reasons the application process will take weeks to complete.
Is Debt Consolidation Right for You?
Consider the following points when deciding whether loan consolidation is in your best interest.
Is it cheaper in the long run? If you can't get a lower interest rate with a consolidation loan, then it's not worth the move.
Can you afford the consolidation loan? Even if the consolidation loan reduces what you have to pay each month, if not, then consolidating probably won't help your finances.
How long will it take to pay off the consolidation loan? If you extend the repayment term when consolidating your debt, you'll most likely pay more interest over the life of the loan.
Everyone’s debt circumstances are different, and the best way to know if it is right for you to consolidate your debt, then you should carry out research and get advice to learn more.