Debt Consolidation Loan
A Debt Consolidation Loan is a way of combining several different debts into a single affordable payment. It can be a viable option for paying off credit cards, store cards, and personal loans.
What is a Debt Consolidation Loan?
A debt consolidation loan is a simple idea. It’s a new loan that allows you to pay off multiple debts and then pay only a single monthly repayment instead of managing several at a time.
Consolidating debts doesn’t make them disappear, but can be a way to manage your money and reduce your monthly outgoings. With that in mind, it’s important that the loan is enough to repay all smaller loans and that the repayments are affordable.
What types of Debt Consolidation Loans are available?
There are two main types of debt consolidation loans:
Secured: : A secured debt consolidation loan is secured against an asset like your home. These are sometimes referred to as homeowner loans. You could be offered one if you owe a large amount of money or have a poor credit history.
Unsecured: These loans aren’t secured against any assets. You may consolidate up to £25,000 using an unsecured personal loan.
Consolidation loans could have a higher interest rate than those linked with your original debts. It’s important to be aware that if you have a history of defaulting on repayments you will face high-interest charges on any consolidation loan.
A debt consolidation loan may be a good option for you if you have a steady income and a good credit score, but the likelihood of getting this will be unlikely if you’re currently struggling or have recently missed payments on unsecured debts.
Am I eligible for a Debt Consolidation Loan?
To be granted a debt consolidation loan, you must meet the following conditions:
- Have a steady job and income in order to manage repayments.
- Have enough financial stability to be able to cope with repayments if your circumstances change – such as falling ill or if interest rates rise.
- Have a good credit rating to allow you to get the best rates.
- You haven’t consolidated a debt in the past.
It’s important to note that lenders will decide whether to grant a loan on a person-by-person basis.
Before choosing a consolidation loan, you should get advice from a debt expert, as there could be a more suitable way to clear your debt that you haven’t considered. Speak to us now on 02895 380906.
What are the advantages of a Debt Consolidation Loan?
- Everything you owe is consolidated, meaning you only have one payment to manage and one interest rate to keep track of.
- You’ll only make one monthly payment rather than juggling several payments at a time.
- It’s an informal solution, and isn’t recorded on a public insolvency register.
- It could provide more time to repay your debts.
- The amount you pay towards your debt each month may be reduced.
- A debt consolidation loan has a positive impact on your credit score – as long as you meet the monthly payments.
- Your debts will be repaid at the end of the consolidation loan term, assuming you haven’t missed any repayments or fallen further into debt.
What are the disadvantages of a Debt Consolidation Loan?
- Your debts must be paid in full, there is no debt forgiveness.
- You may not be eligible for a consolidation loan if you have a poor credit score or the loan companies feel you don’t have enough income to make repayments.
- Interest rates are not frozen and may be higher than what you are currently paying.
- If you choose a consolidation loan, you could pay back more than if you’d handled the debts individually as the loan is repaid over a longer period of time.
- If you don’t keep up with the loan payments, the loan provider can take action against you.
- Your home could be at risk if you choose a secured loan.
- It may take longer to repay your debts than with other debt solutions.
How do I apply for a Debt Consolidation Loan?
Each consolidation loan will be slightly different, but these are the main steps:
Search for the best deal
We can assist you with this, but many companies offer consolidation loans, so there are different rates in existence. Price comparison websites may help find the best option for your lifestyle – one with lower interest rates and over a duration that’s right for you.
Apply to the lender
Use the loan to settle your existing debts
Repay the consolidation loan
Do Debt Consolidation Loans hurt your credit score?
Consolidation loans will have a positive impact on your credit rating in the long term, so long as you keep up with payments, but you may experience a temporary lowering of your credit rating when you first agree to one.
As with all debt solutions, debt consolidation loans are a signal to lenders that you have had an issue with debt repayment in the past. If you keep up with repayments, however, consolidation loans should help you arrest mounting debt and begin a journey to a brighter financial future.
Can I get a Debt Consolidation Loan with poor credit?
Like any other loan, debt consolidation loans are issued at the discretion of the lender, who will consider your credit history and likelihood repaying what you borrow before approving your loan. That means the better your credit rating, the more likely you are to be approved.
If your credit score is poor, there are ways for you to increase your chances. Owning your own home, for example, may make it possible to take out a secured loan against your property. This should be carefully considered, however, as defaulting on payments may put your home at risk.
If you are looking into debt consolidation as a way of getting on top of your debts, you should always seek debt advice first. There are several debt solutions available to people with money troubles, many of which are specifically aimed at those with poor credit.
Is it a good idea to get a Debt Consolidation Loan?
Whether a debt consolidation loan is the right idea for you depends on your financial circumstances. If you have a range of debts to different creditors and a steady income that would allow you to make regular monthly payments, you may be a good candidate for the debt consolidation approach.
Before taking one on, you need to be sure how debt consolidation loans work. That’s where Get Help With Debt at CD Fairfield Capital Ltd can help. As the UK’s only debt solution provider with a lending licence, we help people deal with debt. We can ensure you have all the debt advice and information you need to enable the right decision for your financial future.
If you’re looking for free debt advice or need help deciding whether debt consolidation loans are the best way to pay down your debt, talk to one of our friendly debt advisers today. The phone number is 02895 380906, and we’re waiting to help.
In this section you’ll find advice about:
We work closely with several local debt charities including adviceni.com and ruralsupport.org.uk providing training and support. Linda Wilson,our Voluntary Sector Services Manager, works closely to ensure that our services are accessible to those most in need.