If you have mounted debts and need a way to cope, you may be interested in knowing more about debt consolidation loans. Designed to help individuals with paying off multiple credit accounts, these loans can provide peace of mind and a quicker, easier way of making full repayments. In this post, we will be detailing exactly what a debt consolidation loan is and how you can secure one today.
What Is A Debt Consolidation Loan?
A consolidation loan merges all of your debts into one figure, providing you with enough money to cover the monthly payments. Instead of paying for debts in separate amounts, debt consolidation loans combine each debt into on lump sum, making your debts much more manageable and less complicated. They can also make it easier to track your debts and manage your budget. Once you have paid off your debts, you will owe the money back to a single lender, so it can provide a much more efficient method of repaying.
There are two types of debt consolidation loan:
- Secured – this type of loan is secured against an asset, such as your house or car, and could be offered as debt consolidation loans for bad credit. If you miss repayments, this asset will be repossessed, so this loan requires careful consideration.
- Unsecured – this type of loan is not secured against a personal asset, so it is more of the risk for the lender, so could carry higher interest rates. Typically, unsecured loans allow you to borrow up to £25,000, so if you need to borrow more, a secured loan may be offered instead.
How To Secure A Debt Consolidation Loan
If you have taken everything into account and made the decision to go ahead with a debt consolidation loan, start the process by shopping around and using comparison websites to find the best deal for you.
Make sure you understand how much you need to borrow by collating all of your debts with interest into one figure. This will make it a lot easier when you are applying for consolidation loans as you can input the figure into online calculators to find out how much each lender would charge on interest.
Once you have found a trustworthy lender that works for you, simply apply for your consolidation loan and don’t be afraid to ask questions along the way. If you are still not sure if consolidation loans are right for you, please seek support from the Money Advice Service to find out what your other options are.
Are There Any Alternatives To Debt Consolidation Loans?
Taking out further loans if you are already in debt is not always the best way to manage your money, but there are alternatives available to stop you from creating more debt.
You can consider a balance transfer credit card, which allows you to transfer debt from other credit cards or use a balance transfer check to combine your debt at a 0% interest rate. This method pauses the accumulation of credit card interest, making it a great way to pay off small sums of debt.
If you have a trusted friend or family member, consider discussing personal borrowing to enter into an interest-free agreement with a repayment plan that suits you both.
If none of these alternatives work for you, try pursuing debt settlement, which is an attempt to get your creditors to agree to a single, reduced payment on your debt. This is a great way to quickly get rid of debt and save a lot of money in the long run, however, it can be risky and possibly affect your credit score.