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The Ultimate Debt Consolidation Loans Guide

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If you're struggling with managing several different sources of debt, have you ever considered debt consolidation loans? Do not ignore this possible solution, as it may be exactly what you were looking for. We all have debt we're wrestling with, but you can make your life so much easier by streamlining what you owe and choosing to simplify your repayment process. As you will see, the process is simple and there are even some similar alternatives if you're interested in consolidation, but not in this particular kind of loan.

Up To Your Eyeballs In Debt?

If you're here reading this, chances are that you, my friend, are in serious debt. I know, all debt is serious, but if you have multiple loans that you can't seem to be able to keep track of, then the situation is turning dire and you need some help with managing everything. The thing to remember about debt nowadays is that we're all more or less in the same boat. Student loans are now pretty much universal; add all sorts of unsecured loans, and we can already feel our collective anxiety rising.

The answer to your debt anxiety is to face it head on. Here's how:

  • Budget smartly and save money - a budget will answer a lot of your financial issues and it's the first step to becoming financially responsible.
  • Organise your finances better - you might be struggling not because you don't make enough, but because you don't allocate your money properly. Get yourself a spreadsheet.
  • Ask for debt advice - free debt advice is available from all sorts of organisations, if you feel like the situation warrants it. This is the last step before taking serious action. Did you know that the government ca help you write off as much as 85% of your debt? National Debt Advice can help you figure it out.
  • Consolidate your debt - sometimes, there is no better solution than to just bite the bullet and get a loan to consolidate your debt. Let's learn more about that.

What Is Debt Consolidation?

Let's start with defining the basic concept - what is debt consolidation, anyway? And how can a loan help you do it? Debt consolidation is when you streamline your debt. You take debt from multiple sources and merge it together into just one major source.

For example, let's assume you have a personal loan of £2000, and a couple of other unsecured loans of £5000 and £3000, respectively. That totals £10,000. Well, instead of paying off three different loans, you merge all of them together and consolidate, resulting into just one loan of £10,000.

How Does It Work?

A debt consolidation loan is, as you will have guessed by now, a loan that allows you to consolidate your debt. Basically, it is the new loan that you take out, encompassing all of your debt, from different sources. You get this loan for a larger amount, pay off your previous debt, and continue to pay off this loan in instalments, just like you would any other loan. There are various advantages (but also disadvantages!) to consider, but we will talk about those a bit later. For now, what you need to know is that instead of paying off multiple loans, you will only be paying off one big loan.

1. How Much Can I Get With A Debt Consolidation Loan?

Since this loan is meant for debt consolidation purposes, it's likely you're going to get it in a larger amount. The maximum amount you can get depends on what kind of loan you go for, as well as your financial situation. If you opt for an unsecured loan, for example, you can expect a maximum of around £20,000. This hinges on an excellent credit score, however, a guarantor, a very good projected income, etc. Not everyone will be able to get the full amount.

The other option you have is to get a secured loan. A secured loan is a loan where you need to put an asset up as collateral. This effectively secures the loan, should you become unable to pay and end up defaulting. In that case, the lender can legally keep your asset in order to offset the loss incurred by your failing to repay the money you borrowed from them. This option will give you more flexibility in terms of amounts, but the sum you can borrow will depend on the value of your asset, to the tune of £35,000, or perhaps even £50,000. The asset representing collateral must be of higher value than the total amount you borrowed.

2. Can Anyone Get A Debt Consolidation Loan?

There are no categories of individuals that are specifically excluded from this kind of lending, so there is no reason why you shouldn't be able to get a loan, as long as you meet the criteria. Yes, any financing solution will require you to meet some basic requirements, and this is no different. You first need to check off some very simple, very basic criteria, like living in the UK, and being a legal adult. Certain financial institutions may ask that you open an account with them for a specific minimum time, like 30 days.

You will undergo some of the traditional checks that come with loans - a credit check, an affordability check, an employment check, etc. Essentially, what the lender is setting out to find out is that you are not lying about your identity, that you can afford to repay the loan, and that you do not have a record of poor financial behavior, such as defaulting on loans, etc.

3. What Banks Offer Debt Consolidation Loans?

When you start looking for debt consolidation loans, it is recommended that you cast as wide a net as possible. That means that you should look online, as well as on the high street. A lot of big banks offer debt consolidation loans specifically, so you should check with your own bank, first of all. You may be lucky enough to be able to take advantage of the established relationship you have with the bank. This can open up options such as debt reduction, a change in the repayment terms, or other perks you may enjoy as a long-term client.

Otherwise, you can find plenty of financial institutions online, both traditional, like banks, or different lending companies. If you do choose to go with a high street lender, make sure to check them thoroughly:

  • Check how long they've been operating
  • Look for reviews on independent, third-party websites
  • Carefully read the terms of the loan and all the fine print
  • Make sure they are registered with the Financial Conduct Authority (FCA)

4. Will Debt Consolidation Loans Hurt My Credit?

I'm sure you're worried about your credit score - we all are. So you're probably wondering how a loan like this will affect your rating. Will it hurt it? Well, as long as you keep repaying every instalment on time, the answer is no, there is no reason why a debt consolidation loan will hurt your credit. In fact, repaying it consistently should do wonders for your credit rating and help it improve, as you are demonstrating good faith and an ability to responsibly repay your debt.

If you struggle with a poor credit rating, you may want to consider secured loans as a means of consolidating debt.

Who Should Get A Debt Consolidation Loan?

So, now you've read all about the basics and intricacies of debt consolidation loans, but one thing may still remain unclear - should you get one? Who should get a loan like this, or is a good candidate for debt consolidation? Let's take a look at a few different scenarios; you should get a debt consolidation loan, if:

  • You have a difficult time remembering the details of all your loans

When you're in debt in multiple places, every one of those loans is going to come with its own set of specific details:

a) amount borrowed

b) amount repaid

c) interest rate

d) repayment term

e) instalment date, etc.

It's hard enough to remember everything about one loan, let alone several! You can circumvent this headache altogether and streamline things like interest rate and repayment term. This will eliminate your anxities and ensure that you are in complete control of your debt, so you can manage it more effectively.

  • You can't afford to repay all of your loans

More debt means more money to repay, and after a while, you might find that it is becoming increasingly difficult, if not impossible, to stretch your budget that thin. Some instalments will have to be skipped in favour of others, which will undoubtedly attract a poor credit rating and some very irate lenders. But did you know that when you consolidate your debt, you can sometimes reduce the amount you owe, or at least the interest rate? We will touch upon this point more soon, but keep in mind that it can help with affordability.

  • You find it difficult to manage and keep track of all of your repayments

You know for sure you've repaid all of your loans last month...or do you? And how much did you pay for each? Do you know how much you have left to repay? What about how much interest you're paying on each of your loans? If a lender threatened you for not paying, would you even know if they're trying to scam you or not? If it becomes too confusing to keep track of all of your payment plans, then it's time to streamline and consolidate under just one loan. You have one payment to make, in one place, once a month.

  • You are looking to improve your credit score

Bad credit influences your borrowing experience in the worst kind of way. It can hinder you by limiting the amount you can borrow, your repayment term, and increasing your interest rate, all to accommodate the risk you represent to the lender. What if I told you that you could improve your situation - and your credit score - by consolidating your debt? That's right, getting a debt consolidation loan can help you be more diligent about repayments, reduce your debt, and even decrease that pesky interest rate. It's a win-win-win for you on all counts.

What Are The PROs Of Debt Consolidation Loans?

If you're still not convinced that debt consolidation loans are a good solution for you, or if you need more info to sway you, then perhaps you would like to take a look at the pros and cons of debt consolidation. First up, read up on all the advantages this type of lending can bring.

  • It can reduce your overall debt

The most attractive feature is, perhaps, the possibility of reducing your overall debt. Depending on how much debt you have and where you get your loan, you can cut back on your overall amount, usually by decreasing your interest rate. You see, a lower interest rate means you end up paying a lower extra charge in addition to the amount you've borrowed, and who wouldn't appreciate that? Be sure to at least bring up the possibility when negotiating the new terms with the lender; the flexibility they offer you may surprise you!

  • It can make it more affordable

Since the terms of your loan are completely new, they can make this loan more affordable. That can be achieved not only through an interest rate reduction, but also by setting smaller instalments. A too-high instalment can put significant stress on your purse, but also your life, in general. This way, you can pay less every month and make repaying the loan more affordable for you and your current circumstances. Don't be afraid to take advantage of this clean slate you benefit from with the new loan.

  • It's makes your debt easier to manage

It's not terribly difficult to figure out that repaying, managing and keeping track of just one loan is much less difficult than doing it with multiple loans. Debt consolidation offers you the luxury of forgetting the stress of running around paying loans multiple times a month, or having to jot down and remember all kinds of details about each one. Streamlining your debt will simplify your life in more ways than you realize, and it will also cut back on the time you spend managing it and worrying about it.

What Are The CONs Of Debt Consolidation Loans?

And since we've looked at benefits, it's only fair to also take a look at some drawbacks. What are the risks you take when you commit to a debt consolidation loan? What are the negatives of this arrangement? Do you have anything to lose? Consider these aspects before making a final decision.

  • You may end up paying more in interest

Unfortunately, new terms can also mean than you can get saddled with less favourable ones than you had before. Your interest rate may actually increase, in which case, it is not recommended for you to go ahead and consolidate your debt. Consolidation is meant to be advantageous for the borrower and make it easier to repay their debt, but if your interest rate is higher and that impacts the overall amount you are set to pay by the end, then it's not worth it. Of course, you may choose to repay early, which would cut down on the amount you pay in interest, but as you will see, that comes with its own set of problems, as well.

  • The length of your loan may be extended

Now, it's true that you can opt for more affordable repayment instalments, but unless the total amount is significantly decreased, it can mean that your loan is simply extended and you have a longer repayment term. If your interest rate is not massive, this might still be a beneficial arrangement for you, if the convenience of affordable instalments offsets the increased overall repayment. If, however, this severely impacts the total sum and affects your financial situation in any capacity, then it may not be the best idea. Plus, you may find that you don't want to be tied to this loan forever, and who can blame you?

  • Early repayment charges are possible

Remember what I said about repaying early and how it's not that cut and dry? You should know that if you were planning on making an early repayment in order to avoid massive interest charges, you are out of luck - there is a charge incurred for early repayments. Of course, if the money you save is still significant, it's worth going through with this option, but it's something you need to be made aware of before you make plans counting on it.

Worried about being approved? Do a soft search beforehand to see if you can get the loan. This will not impact your credit in case of rejection.

What Are Some Good Alternative Solutions To Debt Consolidation Loans?

Ok, but what if you've read all of this and decided that a debt consolidation loan is not for you, after all? Do you have any suitable alternatives if you're interested in consolidating your debt? As a matter of fact, yes, you do. Here are some of the options you may want to explore, if you don't want to commit to this type of lending.

  1. Secured loans

Your best bet may be to get a secured loan. That's because you get a larger amount of money, and you don't need to worry as much about your credit rating or anything like that, as it is less important. What is essential is the asset you put up as collateral, as its value will dictate how much money you can get. A secured loan for homeowners or even a logbook loan should be suitable, but of course, there are drawbacks to consider.

The biggest red flag is the fact that you risk losing the asset to the lender. No one wants to lose their car or their home in exchange for a loan, and especially if your previous debt was all from unsecured loans, consolidating them with a secured loan is a big risk on your part. You would have to be reasonably certain that you would be able to repay the loan in order to have the confidence to put an asset up as collateral.

  1. Peer to peer loans

If traditional financial institutions aren't giving you the time of day (or perhaps you don't trust them), then maybe borrowing from a fellow peer sounds more appealing to you. The advantage here is that the person sets your terms, and perhaps you might be able to negotiate something in your favour. The disadvantage is that the lender will take your credit rating into consideration, so if that is not exactly perfect, you may find that you get rejected. An advantage, however, is that there are multiple lenders to choose from, and someone may be willing to lend you the money.

  1. Credit cards

The credit card saves the day, once again. It's so convenient, and if the amount you need is not massive, you might be able to get away with consolidating your debt with the help of your credit card. This will depend on how much wiggle room you have, in terms of amounts, and exactly how much interest you pay on your credit card. Interest rates aren't known for being low, but if you manage to get your hands on one of those 0% cards and you are confident you can repay the money within that grace period, then your interest charge will be 0 and you will be sorted.

All in all, debt consolidation loans can be an excellent solution to a very real problem we are currently facing. With so many people in debt, particularly the younger generation, it's no wonder we need financing solutions like this. Between student loans, payday loans, and other forms of personal lending, it can become very difficult to manage loans and payments in so many different places. That is why debt consolidation is an excellent idea, but is a debt consolidation loan the best option? Review the information carefully and decide whether this type of loan is suitable or if you prefer a similar alternative.

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