A type of loan that could be more affordable to you, find out more information here
A debt consolidation loan can be taken out to pay debts such as credit cards and store cards, catalogues and personal loans. Although your debts won’t disappear, if you can afford the new loan repayments, merging them into one personal loan could reduce your monthly outgoings and help you better manage your outgoings because you will only have to make one monthly payment rather than several monthly payments to cover your debts. This can make it easier for you to manage your finances and, in theory, makes keeping up with your payments simpler.
QUALIFYING CRITERIA
This depends on your credit score and the lender you approach.
Please find below an outline of the Risks/Disadvantages, Costs and Advantages of taking out a debt consolidation loan.
COSTS
This depends on the lender you approach.
ADVANTAGES
Taking out a debt consolidation loan means that you will only have to make one monthly payment rather than several monthly payments to cover your debts. This can make it easier for you to manage your finances and, in theory, makes keeping up with your payments simpler.
RISKS/DISADVANTAGES
Debt consolidation is not the best solution for everyone, you must consider whether you are likely to pass the credit worthiness assessment when applying for a consolidation loan; it may be in your best interest to consider other debt solutions first.
Taking out a debt consolidation loan could leave you in a worse financial situation than you are currently in. It is important to remember that your credit rating may already be affected, due to making reduced payments to your creditors. You will usually find that the only way you can borrow more money is at a higher interest rate. If you have to borrow money at a higher interest rate you will pay more money back over the lifetime (or term) of the loan. Also if you end up with a higher interest rate: If, for example, you are transferring credit card debts across to a consolidation loan, you could end up paying more interest than if you moved these balances to a balance transfer credit card offering a 0% introductory period on balance periods for several months. Another risk involved with this solution is early repayment penalties: Some lenders will charge you a fee if you wish to pay off an existing loan before the end of its fixed term. Check your terms and conditions for details on how expensive such charges are.
OTHER INFORMATION
There are lots of different loans to choose from if you are looking to consolidate debts, so always do plenty of research before applying for one to make sure you secure the best possible deal. A good comparison site to use is moneysupermarket.com.