If you can't seem to work your way out of debt, then debt consolidation loans may be the financing solution for you. Think of how amazing it would be to not have to keep track of all those loans and stay on top of each and every one. And with the amount of debt we're wrestling with in this country, any help is welcome. Step Change reports that the average person coming to them for help in 2017 had over £9,000 debt in personal loans alone. Debt consolidation may be necessary, so here are some pros and cons to consider.
When To Get A Debt Consolidation Loan
You know that debt consolidation loans are an option, but are they an option for you? When should you get a debt consolidation loan? Here are some of the situations when you may consider it.
If you're having a hard time managing your loans
Keeping track of a loan can be hard work; but when you have multiples, then it's that much harder. You have to remember and keep an accurate record of how much you owe and where, how much you've paid off, how much you still have to repay, what the instalment rates are, how long the repayment terms are, etc. It can get confusing and downright exhausting to be constantly keeping track of everything, so streamlining all of your debt so you only need to remember details about one loan is definitely the way to go.
You cannot afford to repay your loans
One of the best things about debt consolidation loans is that your loan terms are renegotiated. So, if you've been stuck with terms that are not exactly advantageous at the moment, you're in luck. This is an opportunity for you to get a new interest rate, a new repayment term, and more importantly - a new loan instalment to pay. That means that you can set it up so that you pay less every month, thus making the loan more affordable. If you're currently struggling to make ends meet and cover several instalments a month, then this arrangement should should pretty good.
What Are The Pros Of Debt Consolidation?
Every financing solution has advantages and disadvantages, and we're going to start by looking at the pros, first. What can this option bring you, why would you choose to go into more debt, and is it right for you?
You can reduce your debt
The number 1 thing that attracts people to debt consolidation loans is the possibility of actually reducing your debt. That's right, not only do you get the opportunity of changing the terms of your loan, but you can also pay less. That will depend on where you consolidate and what kind of deal you can work out. Keep in mind that if you opt for a debt consolidation solution from a bank you already have a relationship with, you may be able to take advantage of that and get a reduction. Most banks will be willing to offer you a reduction when you refinance this way.
You can manage your debt easily
The other major aspect is debt management, which is not easy at all to do, but which can be made simple with the help of a debt consolidation loan. Think all the different things you need to do and remember now and imagine only needing to keep track of one single loan, instead of multiple. That will cut back on the time and effort you invest in managing your debt and will reduce the amount of stress generated by your finances.
What Are The Cons Of Debt Consolidation?
We've looked at pros, but it's time for cons - what should give you pause? Are there any aspects that might put you off of consolidating your debt? Keep reading and find out.
Your interest rate may increase
Just how your interest rate may decrease, it may also very well increase. How your new loan terms end up depends on your financial situation, how you've been doing with repayments, as well as the financial institution you choose. A higher interest rate typically means paying more than you would have before, unless you are willing to pay the loan off in fewer instalments (or early), in which case, the amount will be less impacted by the interest rate.
Your debt may grow or your loan may take longer to repay
Convenience unfortunately comes at a price, and that may be unaffordable for you. It's true that you can reduce your monthly instalments, but that can mean that your loan repayment term will extend for longer. Depending on how high your interest rate is, that can mean a higher total amount to repay. Or, if you wish to repay in a shorter amount of time to dodge the interest charge, then your monthly repayment instalment will be higher, which, again, may be difficult for you to afford on a regular basis.
What Are The Alternatives?
Are debt consolidation loans not really your cup of tea? What alternatives can you opt for, instead? Let's take a look and see.
- Secured loans for homeowners
- Logbook loans
- Credit cards
- Peer to peer loans
In conclusion, debt consolidation can be a real life saver for some borrowers. Depending on how dire your situation is and how badly you need to reassess your debt situation, it may very well be your only solution. You should consult the top tips to consolidate loan and credit card debt, but also carefully review the advantages and disadvantages of this financing option, so you can make sure this option is suitable for your needs.