If you’re keeping track of multiple debts and would like the opportunity to lower your monthly outgoings, or you would just like to make your finances easier to manage, you may find that a debt consolidation loan could help.
A debt consolidation loan could make a big difference to your financial situation – but it’s important to remember that they aren’t suitable for everyone, and you should make sure you look into all your options before committing to anything.
How could a debt consolidation loan improve my financial situation?
A debt consolidation loan can allow you to pay off your existing unsecured debts in one go, after which you’ll repay your consolidation loan in single monthly payments. This can make your debt much easier to keep track of, as you’ll only have one payment to make to one lender each month, instead of several.
Many people who are consolidating their debts take the opportunity to arrange to repay the loan over a longer timeframe than their original debts – making each monthly repayment smaller. This can help to free up extra cash on a monthly basis, but bear in mind that repaying your debt over a longer timeframe means you will pay interest for longer, so you may pay more overall.
Having said that, though, your debt consolidation loan may come with a lower interest rate than your existing unsecured debts – particularly if you are consolidating debts with high APRs (Annual Percentage Rates).
What impact will debt consolidation have on my credit rating?
Debt consolidation shouldn’t harm your credit rating at all. Unlike other debt solutions (such as a debt management plan or an IVA (Individual Voluntary Arrangement)), debt consolidation doesn’t involve asking your lenders to accept smaller payments – you’d simply be paying off your debts all in one go.
Providing you can keep up with the repayments to your new loan, you’ll be showing your new lender that you are a responsible borrower – which should help keep your credit rating healthy.
Plus, having just one debt to focus on – and one payment to budget for every month – should make it much easier to keep on top of your monthly payments from now on, lowering your risk of missing payments.
If you aren’t able to keep up with your repayments, though, and you start missing them, this can affect your credit rating. This is one reason you shouldn’t take out a debt consolidation loan – or any form of credit, for that matter – unless you’re sure you’ll be able to keep up with the payments until the debt is paid off.
This article was written by First Debt Consolidation – you can visit their website here: www.firstdebtconsolidation.co.uk.