Guide to Debt Consolidation Loans
Debt Consolidation Loans are essentially a way of combining all your debts into one loan. The benefits are clear, by combining small loans, pay day loans, overdrafts, store and credit card bills, into one larger loan you will often get a better rate of interest.
For many people debt consolidation loans are a way of paying less interest and by having all the debts together into one loan it’s a way of feeling more in control and on top of the debt. Paying one monthly fee that covers all debt can be easier for people to manage rather than a number of different repayments that may come out at all times of the month.
Key Features of Debt Consolidation Loans
- All debts are consolidated into one loan
- Debt consolidated loans usually have lower interest rates than the rates you are paying on smaller loans
- You may also be able to stretch your payments out over a longer period
- Debt consolidation loans are usually secured loans, this means they will be secured against your home or other significant assets
Things to be Aware Of
Do be aware though that many people, after they have consolidated their debts and are paying less each month, are then tempted to take out more short time borrowing. This can be a tempting trap but can get you into huge financial problems.
Another factor to consider is early redemption fees , some lenders will charge you for exiting the loan early.
Also, as consolidated loans are larger loans than smaller short term loans they may be secured loans. Failure to pay the debt could then result in you losing your home.
Alternatives to Debt Consolidation
Remortgaging your home could be a good alternative to debt consolidation. Do be aware though of arrangement fees. Credit cards can also be an option particularly if they have low APR, but these will require a good credit rating.
