If you are in debt to multiple creditors, and finding it hard to keep track of your payments, then a debt consolidation loan might be the right debt solution for you.
A debt consolidation loan allows you to pay off all your unsecured debts in one go, leaving you with just one monthly payment to make, to one creditor. Some people take the opportunity to slow down the rate at which they are repaying their debt - bringing their monthly payments down to a level they know they can comfortably afford.
As with any debt solution, it is important to consider your options before agreeing to anything. We will now take a look at some of the pros and cons of a debt consolidation loan, to help you decide if debt consolidation is right for you.
Pros:
- If you choose to consolidate high-interest debts, from credit/store cards for example, you could substantially reduce the interest rate you are paying - which means your debt won't grow as fast.
- If you spread your repayments out over a longer period of time, it means you will pay less each month.
- It could help you avoid damage to your credit rating - with just one monthly repayment to make, it should be easier to control your finances and make sure you have enough money set aside to make your monthly payment.
Cons:
- By spreading your repayments out over a longer period of time, you might end up paying more interest than if you'd paid your debt off in a shorter period of time (unless the interest rate on your debt consolidation loan is low enough). However, many people calculate that paying a bit extra is worth it if it means they have an affordable, realistic way to become debt free.
- You might be in debt for longer. If you make smaller monthly payments, your debt will take longer to pay off.
- Debt consolidation doesn't actually reduce your debt - you'll owe just as much when you consolidate your debts, although it should be easier to manage.
For more information on debt consolidation and other finance related information such as IVAs and
bank accounts, speak to a prefessional adviser.
