What is a consolidation loan and is it right for me?
There are many ways to take control of personal debt, from debt management and negotiation right through to more serious solutions such as bankruptcy. One way to ease financial problems is to take out a consolidation loan.
So, what is a consolidation loan and is it right for everyone? To consolidate is to add together, so a consolidation loan is designed to allow you to restructure your debts by adding them together and paying them back as one. This has become a popular way to manage debt, whether you are struggling to make your repayments or you are simply looking for a good deal.
How does a consolidation loan work?
The main appeal of a consolidation loan is that you can take multiple debts and put them into one monthly payment. Not only does this make managing your money much easier, it can also help you to pay back less. In some cases, the interest paid on the debts will be greater than the interest paid on the consolidation loan, which means that it is possible to save money with the right financial solution.
Many people who apply for a consolidation loan are struggling to pay the bills, but others are simply looking for a good deal. It is possible that a consolidation loan can offer better rates of interest than credit cards, short term loans or overdrafts, so it could be quite a sensible move for some people.
How many debts can be put into a consolidation loan?
In most cases, there will be no limits to how many debts you can consolidate into one payment. The only limiting factor is the size of the debts, not how many you have. For example, if you can get a consolidation loan for £10,000 then you could put ten debts of £1,000 into it. However, if you have eleven debts worth £1,000 each, then you will have to leave one of them out of the loan.
What if I cannot get credit for a consolidation loan
Most people who are currently in employment can get a consolidation loan, as can many other people too. But, if you cannot get your hands on one, there are plenty of other options still available to you. The most obvious alternative to consolidation loans is a debt management plan.
A professional debt management service will negotiate with your creditors on your behalf. This means less hassle and less correspondence, along with a convenient, single, monthly payment. There is also a chance that interest payments can be frozen too, so in many ways a debt management plan can have a similar affect on your finances to a consolidation loan. The biggest difference between borrowing and non borrowing debt solutions is the affect that they can have on your credit rating and the liabilities associated with each. Make sure you find out as much as possible about all your options before entering into any form of agreement.
If you have any questions about your finances you should get in touch with professional advisers.
If you are considering taking out any form of credit then your should think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.