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Last updated: 10 August 2021
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Coming soonWhen someone is in debt, it is often to multiple different lenders and the different repayment schedules can be difficult to keep on top of. Debt consolidation acts as one solution to this and can be a useful way of helping to regulate your monthly outgoings. Consolidating your debt is straightforward, it takes all of your current debts and turns them into a single loan. This means only having to make one monthly payment towards your debts.
Like other loans, they can be secured or unsecured. If they are secured, that means your loan is insured by your high-value assets such as a car or your property, and this is what you'll likely be offered if you have poor credit history. If you've got a good credit rating, however, you may qualify for an unsecured debt consolidation loan.
A debt consolidation loan can make it easier for you to regulate what you are spending your money on and make sure that you are paying off all your outstanding debts at the same time. However, the main reason that people do this is that it can be cheaper, as the interest for one loan can work out less than all of your debts combined. This is not always the case and you have to compare loans in order to make sure it makes sense for you to switch to a debt consolidation loan.
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Coming soonIt's important to compare loans as depending on your own financial circumstances and the amount of debt that you are in, there could be a better option than taking a debt consolidation loan.
One possible option is a 0% interest balance transfer card. Many credit card companies will offer you an interest free card for 2 years, allowing you to pay off the balance of your debt and give you two years to pay this off. This is a much cheaper option but is only available to those with the best credit history, so it might not be suitable for everyone.
If you are already in a position where you may need a debt consolidation loan, taking out further personal loans is not necessarily a good idea. A good option in this case might be a debt management plan. This is an agreement between the debtor and lenders on how you can repay their debts. A debt management plan is arranged by a third-party provider and can be done for free by StepChange , Payplan and National Debtline.
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