If you are struggling to cope with your various debts, including credit card debts and unsecured loans, then debt consolidation may be the solution for you.
Debt consolidation gives you the ability to transfer all your separate debts into one, easy to manage loan repayment.
Debt consolidation is essentially a loan which you use to pay off all your separate debts such as loans, credit and store cards. You then make just a single loan repayment at a monthly rate that you can afford until your debt is cleared.
With a debt consolidation solution, you determine the loan size that you will need to clear your existing debts as well as the payment term based on what you can afford.
Topics covered in this article:
- What are the advantages of debt consolidation?
- Is debt consolidation right for me?
- How debt consolidation loans work?
- Debt Consolidation: Secured loans
What are the advantages of debt consolidation?
There are a number of advantages to debt consolidation and, depending on your personal circumstances, using this method to reduce your monthly outgoings could provide the answer that you have been looking for.
Advantages include:
- All your various debt repayments are transformed into one, affordable monthly payment.
- Debt consolidation makes it easier for you to keep track of your repayments.
- With debt consolidation, you know exactly how much is going out every month, doing away with those nasty surprises when the credit card bill arrives.
- By clearing your existing loan and credit card debts, you eliminate the risk of being charged any additional interest or late payment fees on those accounts.
Is debt consolidation right for me?
Debt consolidation provides a means of taking control of your debts if you are currently struggling with the pressure of multiple bills and payment demands from various creditors.
Debt consolidation helps you take care of your debts without having to resort to more extreme measures which could lead to a bad credit rating, potentially affecting your ability to get credit in the future.
To see if debt consolidation is right for you, use our free Debt Calculator to assess your situation and get expert advice to see if debt consolidation is right for you.
Debt-Free can advise you on the best way forward and even if debt consolidation is not the solution for you, other methods such as debt management, IVA’s or counselling may be an alternative release from your debt problems.
Debt Consolidation: Secured loans
A consolidation loan is a method which can be used by a debtor to consolidate their existing debts into one, manageable, monthly repayment.
This form of consolidation involves the borrower taking out a consolidation loan and using the lump sum to pay-off their existing debts, such as credit cards, store cards and other unsecured borrowings.
Doing so means that your monthly debt repayments could be significantly reduced with just one, simple repayment of the loan being made every month as opposed to the multiple repayments being made previously.
Debt consolidation loans are typically secured loans than are almost exclusively secured loans that are secured against the borrower’s home, meaning that the lender can repossess your home if you do not maintain agreed the monthly repayments. For more information on secured loans, see our secured loans v unsecured loans comparison.
How debt consolidation loans work.
1: Your existing debts.
Prior to consolidation, it is likely that you will have various debts from a number of different creditors. It could be that you are receiving bills or repayment demands throughout the month, making it difficult to keep control of your outgoings.
2. Consolidate those debts.
You take out a debt consolidation secured loan, using the cash lump sum to repay all of your existing debts.
3. Repay the loan.
You make a single, monthly payment to repay the consolidation loan. Remember that your home is at risk if you do not keep up repayments on a loan or any other form of credit secured on it. You should also bear in mind that whilst debt consolidation may reduce your overall monthly repayments, the amount of interest that you will pay could be greater than it would otherwise be.