What is debt consolidation?

Consolidating your unsecured debts is basically a way of grouping them together – which could make repaying them every month a fair bit simpler. Having just one lender to repay with one payment per month could make your debt repayments easier to work into your monthly budget, and take some of the pressure off you.

You could do this by taking out a debt consolidation loan.

What is a debt consolidation loan?

A debt consolidation loan is a new loan you could take out to pay off multiple existing debts. By doing this, you’ll effectively combine your unsecured debts – whether they’re on credit cards, store cards, overdrafts, etc. – into a single debt, which you can then start to repay with a single payment per month.

Consolidating your debts with a loan could only be a good approach if you’re already repaying your unsecured debts comfortably enough, since you must be able to afford your monthly repayments towards the loan, and keep up with these payments until you’ve paid the loan off in full.

How could a debt consolidation loan help me?

If you’re repaying several unsecured debts every month, it can sometimes be difficult to keep track of your repayments. If this is the case, you could risk missing your payments or making them late – which could result in you incurring extra charges and damaging your credit rating.

By consolidating your debts with a loan, you’ll only have to make a single repayment to a single lender every month, which could make your situation less stressful and your finances simpler to keep on top of.

Furthermore, you could decide to repay your debt consolidation loan over a longer period of time by making smaller payments – which could give you more room in your budget every month by reducing your outgoings.

However, agreeing to a longer repayment period could end up costing you more overall, as you’ll be paying interest for longer too.

If you think consolidating your unsecured debts with a loan could be the best approach for you, it’s important to get more information on debt consolidation from a professional adviser before making a decision.

Are there any downsides to debt consolidation?

By repaying all your existing debts with a loan, you could run up fresh debts on lines of credit such as credit cards and overdrafts, which you’d then have to repay as well as your debt consolidation loan – and that could put a real strain on your finances. Check out consolidate debt info.

Useful resources:

Consolidating debts @ Direct.Gov – http://www.direct.gov.uk/en/moneytaxandbenefits/managingdebt/planyourwayoutofdebt/dg_10023163