Do you owe money somewhere, to someone? You’re not alone. More people than you could possibly imagine currently owe cash to some organisation or business in the United Kingdom, and many of those owe cash to more than one credit card at a time. Since money can be hard to come by, and even harder to manage, plenty of people turn towards loan and credit agreements to help them afford the things that they need in life. Unfortunately, as these different loans start to build up and grow over the years, it becomes more difficult to keep track of everything. Eventually, you might find that you end up getting your finances into a serious mess.
Rather than simply allowing yourself to get muddled, it makes more sense to ensure that all of your debts are sorted into one place – so you don’t forget something or miss a repayment. Debt consolidation loans can be the perfect solution for this. As the title helpfully indicates, this process works by consolidating all of your debts into one single loan, so that you only have to worry about a single payment leaving your bank account every month. For many people, a debt consolidation loan can be an easy way to streamline debt obligations and take some of the stress away from managing money.
Understanding Debt Consolidation Loans
If you’re new to the concept of debt consolidation, don’t worry – we can explain.
Debt consolidation loans work by simply moving all of the money that you have borrowed into a single loan, so that you can close down all of the other loan agreements and credit cards that have been bothering you over the years. Instead of making a range of different and separate payments to lenders every month, this means that you only make one single payment to your consolidation loan provider.
Just remember, if you’re thinking of consolidating your debts, you need to make sure that there aren’t any fees or problems with paying off debts early. Sometimes, your lenders will charge you a small fee if you decide to pay the money you owe before it’s due, and you’ll need to factor this into your calculations when you’re deciding whether or not to get a consolidation loan.
Many debt consolidation loans are unsecured, which means that you don’t have to give up your home or another important piece of property if you can’t make your monthly repayments. However, this doesn’t mean that you can simply pick and choose when to make the payments that you owe. Remember that your lender will have the right to pursue you in court if you can’t keep up with your payments.
With that in mind, you should also be wary of consolidation loans that are secured, as if you struggle with repayments, you might find that your home is at risk.
Should you Get a Debt Consolidation Loan?
Perhaps the biggest advantage of a debt consolidation loan is that it allows you to place all of your debts into a single place, so that you only have one rate of interest that you need to keep track of, and a single payment that needs to be paid each month. For many people who already struggle when it comes to managing money, this can make managing debts a lot more straight forward than having to think about making a range of payments each month. You will also find that you have the opportunity to shut down other loan accounts and credit card accounts which should help to improve your credit rating by showing lenders you can responsibly manage your finances.
One potential negative of consolidating your loans, however, is that you might end up paying more in interest than you need to. For instance, if you transfer credit card debts into a consolidation loan, you would end up paying more interest if you moved those balances to a balance transfer credit card that provides a 0% introductory period.
Deciding whether or not a debt consolidation loan is the right option for you will be a very personal choice, and it should be something that you think about carefully before jumping into anything too quickly. For instance, remember to work out how much of a loan you will need to take out in advance, and check the available interest rates that you can access. Remember that the interest you pay will be higher depending on the amount you want to borrow.
At the same time, if you find that after you take out your debt consolidation loan, you feel that you might be able to pay the debt early, you should check to see whether you might suffer any penalties for doing this. Remember that the longer it takes to pay off your loan, the more you will ultimately have to pay in interest.