If you`re looking for a way of reducing your monthly outgoings and/or simplifying your finances, a debt consolidation loan could be for you. It`s a new loan taken out to pay off multiple existing debts - effectively meaning all your debts are combined into one.
There are two main ways that a debt consolidation loan can help to improve your finances. First of all, consolidating your existing debts into one monthly payment should make your debt much easier to keep track of, and you`ll only have one lender to deal with.
Another advantage is that it`s often possible to reduce your monthly debt repayments by repaying the loan over a longer period of time.
The longer you take to repay the debt, the less it should cost you per month. For example:
However, a side-effect of repaying your debt more slowly is that you`ll also pay interest for longer - and as such, you`ll pay more interest overall. In the first example above, you`d pay around £1,280 in interest, but on the 5-year loan, you`d pay around £2,170 - almost £900 more.
As such, it`s down to you to decide whether you`d rather pay less each month but more overall, or vice versa. As with any loan, it`s important to make sure you arrange a repayment term you`re sure you can afford.
You may pay less interest in total, if the rates on your existing debts are higher than on your debt consolidation loan. But the more you extend the repayment period on your debt consolidation loan (to make each monthly payment smaller), the less likely it becomes that you`ll save money in the long term.
If you`re considering taking out a debt consolidation loan and want to know more, click here or call 0800 195 2911.
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