What is debt consolidation?

With our busy day-to-day lives, keeping on top of various credit card debts can be another job that’s difficult to keep track of.

However, if you have multiple unsecured debts that you’re generally repaying well every month, you could simplify the way you keep on top of your debts with a debt consolidation loan.

Let’s look at how debt consolidation could potentially make your financial situation that bit simpler.

 

How does debt consolidation work?

A debt consolidation loan is a new loan you could take out to pay off all your existing unsecured debts, such as credit cards, store cards and overdrafts. This means you would effectively combine multiple debts into one debt, which you could then repay with a single monthly payment to just one lender.

So you wouldn’t have to keep on top of multiple payments, which could make your finances that bit less stressful to manage.

A debt consolidation loan could only be a suitable approach if you can answer ‘yes’ to the following questions:

 

1. Are you generally repaying your unsecured debts comfortably every month?
2. Could you afford your monthly repayments towards that loan?
3. Could you commit to making these payments every month until you’ve repaid the loan in full?

If you’re looking for an approach that could help you get on top of your unsecured debts, Debt Advice Now could help you deal with your debt.

 

How could debt consolidation help me?

A debt consolidation loan could help you to reduce your monthly outgoings. This is because you may decide to repay the debt consolidation loan over a longer period, which means the payments you make every month will be smaller.

However, you should bear in mind that making smaller repayments over a longer period could cost you more in the long term, as interest will grow over a longer period too.

Having said that, as long as it makes it easier for you to maintain your monthly repayments, taking out a debt consolidation loan could help you to protect your credit rating, since you’d be less likely to damage it by missing a payment.