Debt Consolidation

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Debt Consolidation

If you are trying to manage your finances and you owe money to more than one lender then you may benefit from a debt consolidation loan. This type of loan merges all your outstanding debts into a single monthly payment and may help you to manage the amount you owe. However, be sure that you know all the facts before choosing a debt consolidation loan and be prepared that this may not be an option available to you.

What is a debt consolidation loan?
With a debt consolidation loan the new lender will pay off your current debts and transfer the overall amount owed to them. You will then pay the new lender a single and affordable monthly payment for however long it takes to repay the outstanding amount. Typically the loaned amount is repaid on a lower rate of interest and may be provided over a longer repayment period. What are the benefits of a debt consolidation loan?

By moving your current debts into a debt consolidation loan you will benefit from any of the following:

• A reduced monthly payment - a longer repayment term gives you greater ability to pay off the debt rather than just the minimum balance each month.

• Help improve your credit rating - by paying off your loan and not defaulting this will improve your credit rating.

• Reduce the total interest paid - store cards and credit cards have typically high APRs and if you consolidate them under one single loan amount you can greatly reduce the amount of interest you pay each month. Just don't use those cards anymore or you'll undo all your good work.

How do I arrange a debt consolidation loan?
You must first be eligible for this type of loan and the lender will look into your current financial situation and see how much outstanding debt you have and evaluate the risk. Any history of bad debt or significantly large debts may push the lender towards offering a secured or homeowner loan. A secured loan uses your property as security against the loan, and therefore reduces the risk to the lender. Before going down this road you should make absolutely certain that you can afford and do not default on the monthly repayments so that you do not risk losing your home.

Alternatives to a secured loan for consolidation
If you have low outstanding debts and have a reasonable credit rating then a unsecured loan could also help you to consolidate and reduce the debt you owe.