Debt consolidation: how could it help you?

If you're currently repaying several debts (personal loans, overdrafts, credit cards, etc.), keeping track of different payments to different lenders every month could be more confusing than it really needs to be.

However, as long as you're affordably keeping on top of your debts every month, there is an approach you might be able to take to make repaying them that bit simpler: taking out a debt consolidation loan.

Consolidating your debts could help to make things easier on several levels. Let's take a look at how a consolidation loan could do this.

What is a debt consolidation loan?

A debt consolidation loan is a new loan that you could decide to take, if you can realistically commit to making regular monthly payments until you've cleared the loan in full.

Basically, by taking out a loan large enough to cover your existing debts, you'll essentially replace several debts with a single one. As a result, you'll only have to make a single payment per month towards the loan - and you'll only have one lender to deal with.

It's important to keep in mind that if you agree to secure a consolidation loan against your home (if you own it), falling behind with your payments could result in your home being repossessed.

Find out more about debt consolidation.

How much will I repay with a debt consolidation loan?

As with most types of loan, if you take out a debt consolidation loan you'll be expected to make regular payments every month - and confidently commit to them until you've repaid the loan in full.

However, when you're arranging it, there should be some flexibility in terms of the size of each monthly payment you make.

If you feel financially comfortable enough to do so, you may decide to make larger monthly payments towards the loan every month. As a result, you could pay off the loan in full at a faster pace - and you could save yourself a fair bit overall in interest payments.

But on the other hand, you may decide to repay the loan over a longer time period that's more manageable for you - with smaller monthly repayments. There are a few advantages to this. Firstly, it could give you a bit more leeway with your monthly budget, as you'll have less money leaving your account every month to service your debts. What's more, you should be confident that you're repaying the loan at a pace that suits you, which should take some pressure off your situation.

Having said that, repaying the loan over a longer period could end up being more expensive overall, once you've also repaid the interest that will accrue.

Is debt consolidation suitable for me?

When it comes to your finances, it's important not to make any rushed decisions. A good debt adviser can talk to you about your options and give you some practical advice on the best steps for you to take.

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