With loans and credit cards so readily available now, it is very easy to become debt ridden, owing sums of money to various lenders for various periods of time. It can also become very difficult to keep track of. Perhaps your borrowing was at one time affordable and now with a change of circumstances in your life, it has become unaffordable or perhaps you are tiring of the substantial cost of your commitments to several lenders. Bearing in mind, that if you miss or default on a loan payment, it can substantially affect your credit rating making it very difficult to access finance in the future. Whatever the reason, it may be worth considering a debt consolidation loan. This article as inspired by the Everyday Loans debt consolidation information guide.
A debt consolidation loan is a loan which would cover all the loans that you already have and allow you to move all of your borrowing across to the one lender. You would then only need to make one monthly payment, to the consolidation loan provider. It is however recommended that you obtain advice before proceeding with the consolidation loan as the terms and conditions attached to your existing loans will have to be looked at to find out if there are any penalties involved for early repayment. It would only make sense to take out a debt consolidation loan if it is going to reduce your payments.
As with any loan, it is important to look for a favourable interest rate and make sure that you are aware of the terms and conditions attached to the loan. Are there any fees associated with the loan and what are the penalties for late payment or non payment. It is important to compare providers as not all lenders are equal.
A debt consolidation loan has the following advantages:
- Usually a much reduced and much more affordable monthly payment compared to making the payments on all of the separate loans
- Ease of payment and negotiation as you are working only with one lender
- Your credit rating could improve as other loans are cleared and cancelled and it becomes obvious that you are managing your funds in an organised way and keeping up with the payments on the loan
- You can use the cut in spending each month to allow you to save and better plan for the future
There are two types of debt consolidation loan. The first is secured on a asset, usually your home, so if you miss payments, your home could be at risk. This type of loan is often available for those owing a substantial amount of money or for those with a poor credit history.
The second is an unsecured loan which is not attached to any asset. It is important that you are aware of the terms and conditions for each and choose the one that best fits your needs.
As with all borrowing, it makes sense to assess whether or not the monthly payment is sustainable for the duration of the loan.