One of the sad facts of life is that sometimes we fall into debt. speaking, debt can be managed – but when you have multiple debts, it can often become unmanageable and you may be paying huge amounts of interest rates.
As a result, one of the best resolutions is to apply for a debt consolidation loan.
This type of loan can be a lump sum which allows you to pay off your existing debts and just pay off the one large debt.
Often, this can save you a lot of money in the long run from exorbitant interest rates. But how exactly do you get one of these loans?
Our guide below will explain everything you need to know about how you can get a loan to consolidate debts.
So, if you’re ready to learn more – read on!
What Is A Debt Consolidation Loan?
Debt consolidation loans are a specific type of loan that allows you to borrow an amount of money to pay off your other debts.
Typically, these loans are for a few thousand pounds and the loan duration is normally over a few years.
After you have applied for a set amount of money, the lender will give you the details in a pre-credit agreement.
Within this document, your monthly payments and overall loan term will be explained.
There are plenty of advantages for a debt consolidation loan, so let’s take a look at a few of those in more detail.
What Are The Advantages Of A Debt Consolidation Loan?
As we said, there are quite a few advantages for a debt consolidation loan – assuming it is right for you. Here’s some of the biggest advantages:
One Payment Instead Of Many
One of the biggest problems with having multiple different debts is trying to keep up with all of the different payments.
Sometimes, these payments can be on different days in the month and it can often become very confusing and difficult to keep up with every one.
As a result, having one debt to pay off each month instead of many can make your finances much more streamlined, and allow you a more clear vision of how much money you have in terms of your budgeting.
It Could Save You Money
Perhaps the largest advantage of applying for a debt consolidation loan is the fact that you could potentially save a lot of money in interest payments.
This is especially true if many of your debts are in credit cards.
For example, let’s say you have five thousand pounds in credit card debts.
Every one of these credit cards (assuming they are not 0%) will have interest rates on top of your required monthly payments.
As a result, if you are able to clear every one of these debts, you will likely save money by paying one debt with one interest rate.
It Could Improve Your Credit Rating
Credit scores can get a little complicated, but one of the key things to remember is that generally, your credit score improves if you keep up with credit payments.
Conversely, your credit score will be impacted if you have multiple debts.
This is even more true if you have gone over your credit limit due to overspending and a lack of an adequate payment to your credit cards.
Therefore, you might find that clearing debts like this and having one payment per month can massively improve your credit rating.
Are There Disadvantages To Debt Consolidation Loans?
Of course, it’s not always the best idea to apply for a debt consolidation loan – and it will largely depend on your circumstances and you as a person.
Let’s take a look at some of the potential disadvantages.
You Could Get Into Further Trouble
If you accept a debt consolidation loan, you first need to pay off your existing debts. If you do not do this, you will have even more debt troubles.
So, if you feel you cannot manage your money – this might not be the best option for you.
Moreover, if you have credit card debt that you’ve paid off, you must remember not to put yourself back into debt after clearing them.
This could put you into the same situation – but worse than before!
Your Debts Might Be Too High
You might not even qualify for this type of loan – and even if you do, you may only be offered a fraction of what you need. As a result, other debt plans might be better for you, including:
- Debt Relief Order (DRO)
- Individual Voluntary Arrangement (IVA)
- Debt Management Plan (DMP)
How Can I Apply For A Debt Consolidation Loan?
Applying for this type of loan is more or less the same as applying for other types of unsecured loans.
You will first need to find a lender that offers these types of loans, and you will need to pay attention to their interest rates.
One of the best places you can find debt consolidation loans is through your credit report. You will likely find an area that has offers tailored to your credit score, and you can perform a “soft check”.
A soft check is when a search is made based on your current details without harming your credit score – unlike a hard credit check.
You will then be provided with options and you then have to think carefully about what the lenders are offering you. Other than this avenue, you can perform a quick Google search for some other lenders, or even walk into your bank.
Be careful with lenders you are unfamiliar with though and always pay attention to their rates and charges.
Applying for a debt consolidation loan is pretty simple, but the important thing to note is that it might not be for you – so always be careful!