Debt Consolidation Loans - Could They Save Me Money?
If you have a number of debts, and would like to simplify your finances and reduce your monthly expenditure, then a debt consolidation loan could help.
Debt consolidation involves taking out a new loan and using it to repay all your existing debts, leaving you with just one debt to one creditor.
Here, we take a look at some of the benefits a debt consolidation loan could deliver:
• A debt consolidation loan allows you to lower your monthly expenditure by spreading your repayments over a longer timeframe than your original debts. However, if you choose to spread out your repayments, the debt will take longer to repay, and you may actually end up paying more overall (due to interest).
• However, it's quite possible to save money in interest - and therefore save money in the long run - particularly if you are consolidating debts with a high interest rate, such as credit or store cards (for example, if your credit card has an interest rate of 17%, but the consolidation loan's interest rate is around 8%, your debt will grow at a slower rate).
It is important to note, however, that debt consolidation may not be the most appropriate way for you to address your debts.
For instance, a debt consolidation loan may not be suitable if you can't consolidate all your unsecured debts and/or you don't have a stable income and cannot commit to making the monthly payments.
Having said that, if you owe money on a low-interest overdraft, it may not be a good idea to repay this debt by taking out a debt consolidation loan with a higher interest rate.
Before committing to any debt solution, it is important to consider the pros and cons of your various options - talk them over with a professional debt adviser, who can help you decide on a solution that's right for you.
If debt consolidation isn't right for you, you may find that an alternative debt solution, such as a debt management plan, is a more appropriate way of managing your finances.
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