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 debt consolidation loan.
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?
A debt consolidation loan will help you to combine all your debts into a single loan. This means that you will be paying a much lower interest rate, leaving you with only one monthly payment. This loan can be a great advantage when your existing loans have high interest rates.
Types of Consolidation Loans
Combining all your debts will lower your monthly expenses and makes it easier for you to manage your monthly bills. There are different types of loans you can use to consolidate your debt.
One way to consolidate your debts is through a home equity loan. It is a secured loan that uses the equity in your home as collateral. You must have a fair amount of equity in your home and good credit for you to be qualified for this loan. The interest rates of a home equity loan may be lower than other types of loans. However, you are risking your home for your debt. If you fail to make the repayments, you could lose your home.
You may also choose to do credit card balance transfers to consolidate your debts. This allows you to transfer your credit card balances to a single credit card. Choose the credit card with a zero or low interest rate. Low balance or zero transfer interest rates are promotional rates, which usually expire after six months.
If you choose the credit card balance transfers, make sure you know the expiration of the low rate. Beware when the regular interest rate will take effect for the remaining balance. You will need a credit card with a credit limit that is large enough to hold all your credit card debt if you want to use a credit card balance transfer as a consolidation loan.
However, this consolidation solution has a downside. Putting too much debt on one credit card can have a negative impact on your credit rating because your credit utilization will go up. The good news is that your credit score will bounce back as you pay down the balance.
You can also use a personal loan to help you consolidate your debts. If you have a good credit score and can borrow a loan large enough to cover all your balances, it is a viable solution. This type of loan is unsecured, which depends on your creditworthiness. It has fixed payments over a fixed 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 greatly depends on your credit score. If you have a poor or bad credit, you may get a loan approved, but it’ll be at a higher interest rate. Others cannot get a loan approval at all.
Debt consolidation loans come different shapes and sizes, so it’s crucial that you choose wisely. These loans have a lower interest rate than the total interest rates you are currently paying for your existing debts. 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 with any type of debt consolidation loan, you are not really getting rid of debt. Rather, you are simply gathering all debts into one to make it easier for you to pay.
You may think that you’ve got only one debt and may be tempted to borrow more. However, avoid taking out loans until your debt consolidation loan is completely settled.
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.