Don’t Drown in Debt: Loan Consolidation to the Rescue
If you are finding it difficult to keep on top of your debts and seem to be almost constantly juggling with your finances, it may be that consolidating what you owe into one easy-to-manage loan may well be a good solution.
Consolidating your borrowing can help you turn a number of different outgoings into one manageable payment so it is right for you?
Loan consolidation explained
The concept behind the idea of loan consolidation is very simple and it works by calculating how much you owe on different loans and credit cards and then comparing the cost of borrowing the sum of money required to clear these debts against the amount you pay individually on each loan.
It is not advisable to borrow any more than your need as you will end up paying back more in interest than you have to and most lenders who are prepared to offer loan consolidation tend to offer between a minimum of £2,000 and a maximum of £25,000 depending on your circumstances and credit history.
You can sometimes get a larger loan than £25,000 but that will often mean applying for a secured loan which means putting your property up as security. You will probably be offered a longer term to pay the money back with a secured loan but you need to counter the perceived advantage of a lower monthly repayment with the added interest charged for borrowing over a greater period and the risk that you can lose your home if you are unable to make the payments.
There are some attractive personal loan offers around at the moment where you may well be able to find the lowest APR rate offered for some while, so you could possibly take advantage of this situation and apply for a loan to consolidate and tidy up your finances.
The benefits of consolidating are having one loan amount to pay rather than several bills to worry about and the fact that your new loan could save you money overall compared to the interest rate you are paying on your existing debts. Taking out a consolidated loan will certainly help you to manage your finances more easily and focus on making just one monthly payment rather than worrying about making numerous payments at different times of the month.
Check the details
As with any financial contract that you enter into it is important to check the details relating to the loan so that you are satisfied it is exactly what you want to do. Check that the interest rate being charged for the loan is the same as the one quoted, as it is possible that the rate quoted was a representative rate and the figure could have been adjusted to account for your credit history.
Also check whether there are any restrictions or penalties for settling the loan early, as you may want to clear the debt earlier and don’t want to incur additional charges for doing so.
Loan consolidation can be a good idea for many but you should certainly check all your options and work out how much you actually need before you go ahead.
Molly Perkins understands the complications and stresses of personal money management. She enjoys writing about the breakdown of improving financial health for the everyday person.