A debt consolidation loan can help you to simplify your finances and reduce your monthly outgoings - which can be helpful if you`re looking to make your finances stretch a little further.
It`s a new loan that is big enough to pay off all your existing unsecured debts, effectively combining several debts into one. This means you`ll only have one payment to make per month, and it can make managing your finances a lot simpler.
Many people who take out a debt consolidation loan arrange to repay it over a longer period of time than they would have repaid their original debts, making their monthly outgoings smaller, so they`re confident they can comfortably afford them. This can be very helpful in the short term, but be aware that it can sometimes mean you`ll pay more overall than if you had kept on with your original debt repayments.
It is possible to save money overall with a debt consolidation loan, but there are a number of factors affecting this.
On the one hand, it will depend on the difference between the interest rate on your debt consolidation loan and the interest rates you have been paying on your original debts. A lower interest rate on your debt consolidation loan will mean you`ll pay less in the long run - if you repay it over the same time period as you would have repaid your original debts.
However, many people who take out a debt consolidation loan choose not to repay it over the same period, as they want to reduce their outgoings on a month-to-month basis by `spreading out` their repayments.
The longer you take to pay off your debt consolidation loan, the longer you`ll be paying interest - and the more chance there is that you`ll pay more overall.
In many cases, though, the overall cost is not the most important thing to someone who`s considering a debt consolidation loan. Many people will accept a higher overall cost, so long as they know that their monthly repayments will be smaller. In many cases - but not all - this can make good financial sense.
If you are considering taking out a debt consolidation loan but are unsure about whether it`s a good move, speak to one of our expert debt advisers today on 0800 195 2911.
Answer a few simple questions and we'll give you an instant recommendation on your best way out of debt.
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