A debt consolidation loan is just one way that you can attempt to control your debt. However, you may find that it isn’t the best solution for you. In this article, we’ll look at what debt consolidation loans are, as well as the pros and cons of taking one out.
What Exactly Is a Debt Consolidation Loan?
If you have a number of different debts, then a debt consolidation loan could help you merge them all.
A debt consolidation loan enables you to borrow enough money to pay off any current debts you may have. By paying off all your existing loans, you can then merge your debt into one monthly repayment.
Depending on your credit score, the amount you owe and other factors, two main options may be available to you: a secured loan or an unsecured loan.
Secured loans are secured against an asset, which is usually your home. Unsecured loans are not secured against any assets. This guide can help you learn more.
Before you take out a debt consolidation loan, you could consider seeking professional advice to help understand whether the product is right for you.
Why Might a Debt Consolidation Loan Be Right for Me?
Debt consolidation loans are not perfect for all people, but there may be certain scenarios where they may be right for you. These include when a debt consolidation loan:
- Provides you with the ability to afford all repayments
- Allows people to pay less interest on your debt and the total amount payable is lower
- Ensures that any savings you make by consolidating your debt are not wiped out by fees and charges
- Permits you to cut back on your expenditure and manage your finances
Why Might a Debt Consolidation Loan Not Be Right For Me?
However, as previously stated, debt consolidation loans aren’t always right for everyone. A debt consolidation loan may not be right for you if:
- Your personal circumstances may change, which would mean that you could no longer keep up with the new repayment plan
- The loan will not clear all of your debt
- The new repayments aren’t affordable
- You will pay more overall than if you stick with your current obligations
Choosing the Right Debt Consolidation Loan
If you decide that a debt consolidation loan is for you, then there are a number of things you should look for.
Many companies charge fees for arranging debt consolidation loans, so ensure that you read any small print carefully and factor this cost into your sums. In addition to this, if you’re paying off current loans, then check whether there are fees for paying these off early too, as this could cancel out savings you make.
In conclusion, under the correct circumstances, a debt consolidation loan can help you to improve your finances. However, they aren’t always the best solution for everyone, particularly if you need to use your home to secure the loan against. As a result, before you take out a debt consolidation loan, you should seek debt advice.
