Debt Consolidation Loan

Debt Consolidation is the process of taking all your existing debts and paying them off in one go by taking out a personal or secured loan. The idea is that you pay off all your debts with the loan, so instead of making several payments each month to all sorts of different debts you only have to make one fixed monthly payment.

There are a few things that you need to consider before taking out a loan to consolidate your debts. The main thing to consider is the risk of acquiring more debt to deal with debt. You need to be sure that you will be able to meet the monthly debt repayments and also close the accounts that you have cleared with the loan. If you opt for a secured loan and cannot keep up repayments, your house or assets may be at risk.

Pros of Debt Consolidation

• All current repayments on credit cards and loans are converted into 1 monthly payment that is generally easier to manage and keep track of.
• In some cases, interest rates can be lower, so you may have a more affordable payment by restructuring your debts with a loan.
• Less pressure and harassment in dealing with multiple creditors (providing you close the cleared accounts and do not spend on them again)
• You will have a set date when the loan will be paid off providing you keep to your repayments.

Cons of Debt Consolidation

• Don't be fooled into thinking you have cleared your debts. You have just shifted the debt to another form of debt.
• Be wary of interest rates. Try to get a fixed rate if you want a payment that doesn't change.
• Fees may be payable to arrange the new loan.
• If you have a poor credit rating you may have difficulty obtaining a loan and you may have a higher rate of interest to pay on a loan which can mean it is less affordable. An alternative debt solution may be a better option for you.
• If you get into difficulties making the loan payments each month, it could be more challenging to deal with only one creditor if you are then looking at a debt solution.

Is Debt Consolidation Right for me?

If you have several different types of debt, and you are paying out lots of different bills every month, with varying rates of interest and you are struggling to keep up, it might benefit you to consider your debts into one monthly payment.