Debt consolidation advice - is consolidation right for me?

A debt consolidation loan can help people in debt simplify their finances and reduce their monthly outgoings - but that doesn`t mean it`s right for everyone.

Some people may be better off with a different debt solution. Depending on their circumstances, they may need to consider a debt management programme, for example, or an IVA (Individual Voluntary Arrangement).

How does a debt consolidation loan work?

A debt consolidation loan is a loan which is large enough to pay off a borrower`s unsecured debts, from credit card balances and personal loans to overdrafts. Once they`ve done this, they`ll owe nothing to their previous lenders, and will simply have to repay the debt to the consolidation loan provider.

This means they`ll have just one payment to make per month, which can simplify their finances and reduce the risk of missing payments.

Consolidating their debts also gives borrowers a chance to reassess their financial situation and figure out what they can realistically afford to repay every month. If necessary, they may be able to reduce their monthly payments by arranging to repay the loan over a longer period of time. They will pay more in interest if they do this (as the debt will be accumulating interest for longer), but making sure they really can afford their monthly repayments on their consolidation loan is absolutely essential.

The other main advantage is the interest rate - consolidation loans can come with considerably lower APRs (Annual Percentage Rates) than many other forms of credit.

Debt consolidation advice: who is consolidation right for?

Debt consolidation loans can be a good solution for people who know they can repay their debts, but would like to do so with different repayment terms (lower interest, longer repayment term and/or lower monthly payments). They can be an effective way of helping people who are struggling to keep track of multiple debts, who wish to reduce the interest they`re paying on their debts, or who have committed to paying more than they can comfortably afford per month.

If you`re wondering whether this could be the right solution for you, it`s never advisable to commit yourself without seeking professional debt consolidation advice - and finding out about the potential alternatives.

Tags: debt, debt consolidation, consolidation loans, advice

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