When you have debts with several creditors, then taking out a loan at a lower interest rate to pay off the balances of the other debts is known as Debt Consolidation. It’s usually much easier to manage just one monthly loan repayment than it is to make several payments to your various creditors each month.
Debt consolidation loan – one debt repayment at a lower interest rate
This is a debt solution strategy that certainly has its advantages. Someone employing a debt consolidation strategy is indeed swapping a number of debts with higher interest rates, such as with credit cards or a payday loan for example, for one debt with a lower interest rate.
After consolidating your debts, you need now make only one payment each month, whereas before consolidating your debts you’re undoubtedly trying to meet numerous payments.
And if your new debt consolidation loan interest rate is significantly less than you were paying on your debts before, then you should be repaying less each month (or if you can afford to make the same payment amount each month, the term of your debt should be much less).
Frequently Asked Questions about Consolidation Loans
So is debt consolidation a useful debt strategy?
You must be careful. Evidence gathered from people who have contacted the debt specialists Payplan suggests that many people after taking out a debt consolidation loan began using their credit cards again – and this of course soon built up into another higher interest debt that became just as difficult to repay as before.
Is ‘losing your home’ part of your debt strategy?
Many debt consolidation loans are secured against a significant asset, and for most people this means their home.
So if, after taking out a debt consolidation loan, you run up other debts, you may begin finding it difficult to make your payments again. And remember that if you default on a secured debt consolidation loan, this could lead to you losing your home.
Thinking about debt consolidation?
Debt consolidation might be suitable for you, but there may well be even more suitable debt solutions available with less risk than is often associated with debt consolidation.
For more information about debt consolidation loans, contact Payplan Financial Services Ltd on 0800 980 4140 or use the online enquiry form
Not right for you? Read about other debt solutions that may suit you better: Trust Deed, Sequestration, Debt Arrangement Scheme (DAS), Low Income, Low Assets (LILA), Buy-To-Let Mortgage, Bridging Loan, Remortgage, Debt Management Plan, Full & Final Settlement, Self-Managed Arrangement, Equity Release.