People in debt can often find themselves in multiple repayment schemes that can be confusing to manage and make it even more difficult to get out of debt. Debt consolidation is one possible solu-tion to this problem. Simply, it moves all of your debt into one place, and can be cheaper than pay-ing your debts separately. This guide will take you through the basics of debt consolidation and also show you the alternatives if it’s not suitable for you.
When 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 straight-forward, it takes all of your existing debts and turns them into one loan. This means only having to make one monthly repayment towards your debts. Like other loans, they can be secured or unse-cured. If they are secured that means your loan is insured by your high-value assets such as a car or your property.
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 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.
It’s important to compare loans as depending on your own financial situation 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 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.
Find out which loans you could be eligible to take out, without affecting your credit score