If you are struggling with multiple credit repayments and need a way to help you cope, a debt consolidation loan could be the answer. With debt consolidation loans, all of your existing debts are merged into one lump sum, so all of your repayments are sent to one lender rather than multiple locations, reducing the number of accounts you need to pay off. This makes them useful for individuals in debt difficulty, but debt consolidation loans aren’t suitable for absolutely every case.
Before you begin inquiring about consolidation loans, there are a few things that you need to consider to make sure that it is the right choice for you.
What To Be Aware Of
Some aspects of debt consolidation loans that you need to be aware of include:
- The total cost of the loan – even if the consolidation loan has a lower rate than your existing credit accounts, the amount of interest you pay all together may be more if you are repaying the loan for a longer amount of time.
- The set-up fee – depending on the lender, you may be charged a percentage of the amount you are borrowing to set up the loan. This is something you should research or ask about before agreeing to a consolidation loan.
- The impact on your credit score – while consolidation loans can improve your credit score, applying for a loan and closing old accounts can also have a negative impact on your score.
The Benefits Of Consolidation Loans
While there are things to be aware of when searching for debt consolidation loans, there are several benefits to beginning the process. By merging all of your debt accounts into one lump sum, you will find it easier to pay off in single payments, which will also make repaying the final figure quicker than you may have expected and reduce your stress levels.
Consolidation loans can also have a positive effect on your credit score, thanks to the reduction of your credit utilisation rate. This rate plays a huge role in your overall credit score and by combining your debts into one manageable loan, you will see a significant improvement in only a few months.
Consolidation Loans For Bad Credit
If you have a bad credit score and are worried about your financial position, you may be able to get a debt consolidation loan despite your history. Secured loans as typically easier to get approved for than unsecured loans because they are secured against an asset, such as your house. However, if you do not keep up with repayments, you will lose the asset, so this option is not to be taken lightly.
How To Secure A Consolidation Loan
If you have taken everything into account and made the decision to go ahead with a debt consolidation loan, start the process by shopping around and using comparison websites to find the best deal for you. You should also seek advice before making your final decision because there may be better alternatives available for you.
Make sure you understand how much you need to borrow by collating all of your debts into one figure. This will make it a lot easier when you are applying for consolidation loans and will allow you to easily input the figure into online calculators to find out how much each lender would charge on interest.
Once you have found a lender that works for you and is trustworthy, simply apply for your consolidation loan and don’t be afraid to ask questions along the way. If you are still not sure if consolidation loans are right for you, please seek financial advice to find out what your other options are.