Life can be unexpected and present situations that prompt you to seek out financial help. You may choose to find loans to help with healthcare, temporary cash flow issues, or emergency repairs. However, if you find that you are paying off multiple debts and struggling to keep up with repayments, you may benefit from a debt consolidation loan. Here is everything you need to know about how a debt consolidation loan could help you.
What Is A Debt Consolidation Loan?
Debt consolidation loans are a type of loan that merge all of your existing debts into one figure. You borrow enough money to pay off all of your current debts and owe money to just one lender, rather than paying multiple lenders each month.
There are two types of debt consolidation loan:
Secured
This type of loan is secured against a high value asset, such as your house or car. Secured debt consolidation loans usually have lower interest rates, but if you miss repayments, you could use your collateral.
Unsecured
This type of loan is not secured against an asset, so may result in higher interest rates, but less risk to the customer.
When Should You Consider Debt Consolidation Loans?
Before you choose a debt consolidation loan, you should think about anything that may happen in the future that could prevent you from making repayments. This could include rising interest rates, illness, or unemployment. However, if you feel confident about making the repayments, you can consolidate your debts if:
- You want to use it as an opportunity to cut your spending and get back on track
- Any savings are not fully spent by fees and charges
- You end up paying less interest than you were paying before
- The total amount payable is less than before
However, if you find yourself in financial difficulty and are unsure of which route to take, please seek debt advice before taking out a debt consolidation loan.
How Can A Debt Consolidation Loan Help You?
Debt consolidation loans are designed to merge all of your existing debts into one figure, so that you only need to repay one lender, rather than multiple lenders. You will be able to borrow the amount you need to pay off all your debts, then repay the debt consolidation loan provider. This makes your debts a lot easier to manage, provides you with a clear way to budget, and allows you to pay off debts a lot quicker.
Not only can a debt consolidation loan make money management simpler, they can also result in an applicant paying less than they originally were. By combining the debts into one figure, you may pay less money in the long run, especially if you have good to excellent credit.
Overall, the main way that debt consolidation loans could help you is by providing peace of mind. Managing multiple debts can be overwhelming and stressful, but by merging them into a more manageable sum, you may feel much more relief. Rather than having scattered debts, you will have a better understanding of how much money you owe in total, giving you room to breathe.