Debt Consolidation Loans
Having multiple debts can be very stressful and difficult to deal with. It’s hard to juggle your monthly budget and pay off your debts at the same time. You’ll have to divide your salary for your everyday living and for your credit card payments. To make your debt repayments easier, you can get a loan to help consolidate your debt.
Debt consolidation loans in the United Kingdom are very similar as compared with loans in other nations. These loans are a favourite solution for people with multiple high-interest debts. Debt consolidation loans are most often used to combine financial obligation from credit cards, personal loans, and other unsecured creditors.
One of the advantages of debt consolidation loans is that they are quite easy to get even when one has a credit score that is not so impressive.
You can obtain debt consolidation loans from banks and credit union if you have a spotless credit history. Otherwise, you may have to work with private lenders who are specifically offering loans to people with bad credit.
There are also many online lenders in the UK offering instant loans or fast cash for debt consolidation. The amount you can borrow, however, varies according to the lender. Same goes for the interest rate and the repayment period. These may vary according to your personal circumstances and the lender’s policies and requirements as well.
What is a debt consolidation loan?
Debt consolidation loans can help combine all debts into one loan. Basically, the borrower will enjoy a lower interest rate since there will only one payment each month. This loan can be a great advantage if you have existing loans with high interest rates.
Types of Consolidation Loans
Combining all your debts can reduce your monthly expenses and make managing your monthly bills easier and simpler. There are many types of loan products that you can obtain if you want to consolidate multiple debts.
Another way to combine your debts is by getting a home equity loan. It is a secured loan that uses your home equity as the collateral. You should possess a substantial amount of equity from your home as well as a good credit score in order for you to be qualified for this loan. Home equity loan interest rates are usually lower compared to other loan types. However, you are risking your home for your loan. Should you fail to make the repayments, you could lose your home.
You can also opt to apply for a credit card balance transfer to consolidate multiple debts. You will be able to transfer the outstanding balances of your credit cards to only one credit card. It is pertinent to choose a credit card with the lowest interest rate. Zero transfer or low balance interest rates are usually promotional rates, the duration is usually six months.
If you choose the credit card balance transfers, make sure that you are aware of the expiration of the promotional rate. You should understand when the normal interest rates will apply to the remaining card balance. You also need to have a credit card with a large credit limit so that it can accommodate all your other credit card outstanding debt if you want to use a credit card balance transfer as a consolidation loan.
However, this consolidation solution has a downside. Consolidating multiple debts in one credit card may have a bad impact on your credit score since the utilization of your credit limit significantly increases. On the positive side, you can also benefit immensely by growing your credit score every time you reduce your credit card balance.
You can also use a personal loan to consolidate multiple debts. Once your credit rating improves, you will be able to borrow a larger amount so you can cover all your remaining loan balances so it is indeed a viable solution. This type of loan is unsecured, which depends on your creditworthiness. It has pre-determined payments over a specific time period.
There are also debt consolidation loans offered by banks and credit unions for the sole purpose of combining your debts.
Taking out a Debt Consolidation Loan
The approval of any loan largely depends on how good your credit score is. If your credit rating is bad or poor, you may get a loan approved, but it’ll be at a higher interest rate. Others, unfortunately, are not able to get their loan approved at all.
Debt consolidation loans come different shapes and sizes, so it’s crucial to choose wisely. A debt consolidation loan usually has cheaper interest rates than the sum of all your existing debts interest rates combined. However, while taking a high interest rate debt consolidation loan would let you combine your debts, you may not save money after all.
By increasing the repayment period or the loan term, you can have a lower monthly payment. But, this means that ultimately, you will be paying more interest because of the long loan term.
Be aware that by obtaining a debt consolidation loan, your multiple debts are not really settled. Rather, you are simply gathering all debts into one to make it easier for you to pay.
You may be enticed to borrow more since you think that you’ve got only one debt. However, avoid taking out loans until you have completely paid off your debt consolidation loan.
You can get a home equity loan as your debt consolidation loan. But, if you are not a homeowner, you can apply for an unsecured loan. This means it is dependent on your credit record. Another common way to get a lower interest rate on a loan is to add a guarantor who will also be responsible for the loan if ever you are not able to make payments anymore.
There are many ways to borrow money to consolidate your debts. However, you need to be extra careful with online lenders because scam has been rampant these days. Make sure the lender you are working on is legitimate.
To find the best debt consolidation loan for you, think about how much you need to borrow. Add up all the debts that you would like to consolidate and include any extra charges you have to pay them. Choose your repayment period, which means how long you need to pay it back. And of course, look for the lowest interest rate, if possible.
Keep in mind that a consolidation loan is supposed to help you pay off your debts easily and quickly. Remember that you also have other obligations to take care of in your life aside from settling your debt. If your chosen debt consolidation loan becomes a burden instead of making your life easier, you better get another creditor.