Debt Consolidation

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What is a debt consolidation loan?

A debt consolidation loan is a new loan which you can use to repay all your existing unsecured debts in one go - leaving you with just one debt.

This will enable you to make just one payment per month instead of several until your debt - plus any interest it accrues - has been cleared.

This isn't the only advantage a debt consolidation loan can deliver. For example, you may be able to lower the amount you are required to spend each month by arranging to spread your repayments out over a longer timeframe. However, bear in mind that by doing this, you may pay more interest in the long run.

If you choose to use your debt consolidation loan to repay high-interest debts, though, you might actually save money in interest in the long run. This can happen if the actual interest rate on your consolidation loan is lower than that on your 'old' debts.

Who would a debt consolidation loan be right for?

A debt consolidation loan could help you if you're carrying multiple debts and would like to simplify your finances. Debt consolidation loans may also be right for people who are worried about how they'll keep up with rising costs, and want to lower their monthly expenditure to free up some money to help with this.

If, however, you've got an erratic income, you're in serious financial difficulties, or you don't think you'll be able to repay your loan in a reasonable period of time, debt consolidation probably won't be right for you.

If you would like to free up some extra money for unexpected costs each month and/or make the debts you are carrying more manageable, a debt consolidation loan may be right for you.

References

What is debt consolidation? - Think Money, October 2009

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