debt consolidation loan

Is debt consolidation right for me?

If you’ve got several unsecured debts to several creditors, and you’d like the chance to make them easier to manage and/or lower your monthly expenditure, you may find a debt consolidation loan useful.

You can use a debt consolidation loan to repay all your existing unsecured debts – leaving you with just one debt to repay… to just one creditor.

You may wish to arrange to repay your loan over a longer period of time – which will reduce the amount you are spending each month (and hopefully lower your payments to a level you know you can comfortably afford).

Of course, a debt consolidation loan will only be right for you if you can afford to repay it (just like any other loan).
Let’s take a quick look at the benefits and drawbacks of a debt consolidation loan, so you can figure out whether one may be right for you.

Benefits

1. If you arrange to repay your loan over a longer timeframe, you’ll pay less on a month-by-month basis.
2. Consolidating your debts could help you avoid damaging your credit rating. This is because you’ll only have one payment to make each month, so your finances should be easier to manage and you’ll find it easier to make sure you leave enough money aside each month to cover your payment.
3. You could lower the interest rate you’re paying – if you’re consolidating debts with high interest rates, and your debt consolidation loan’s rate is lower than these.

Drawbacks

1. The amount of debt you are carrying won’t actually be reduced by a debt consolidation loan – you’ll owe just as much as you did before, although it should be a little easier to manage.
2. If you arrange to repay yur loan over a longer timeframe, you could pay more in interest (in the long run) than if you’d repaid your debts in a shorter timeframe. This is, of course, unless the interest rate on your consolidation loan is significantly lower.
3. Making smaller repayments each month will mean you could be in debt for a longer period of time.

Posted By: Mlava