Consolidation Loans - A Brief Guide
If you're up to your ears in debts with a limited budget and wondering how on earth you'll be able to get through from month to month, a debt consolidation loan might be something worth considering.
It's important to note that a consolidation loan is NOT the same as employing the services of a debt management company.
Whereas using debt management means that your creditors are dealt with individually to help reduce the amount you pay to them, a consolidation loan is simply a loan that's large enough to cover all your debts in full and then spread that amount over a longer period of time to help reduce your monthly outgoings.
They might sound similar, but they're not; one's a service, one's a loan.
That isn't to say that a consolidation loan isn't a good idea though - it's just important to know what it is you're applying for.
Since they can be used to combine, say, several credit or store cards with individual inflated interest rates into a single loan with one lower rate, a consolidation loan can actually be the ideal answer to lowering the amount you're spending every month on debt repayment.
However, since it is a repayment, you need to be sure that you can afford such a loan before taking one out as missed payments could put your into further financial difficulty.
If you can't afford one (or, in the case of those already with bad credit, can't get approved for one), then debt management might be a better option.
Certainly, if you do happen to have a bad credit history, then you may find that lenders will only offer you a secured consolidation loan which has to be taken out against collateral such as a house or car.
This may mean that your interest rates are slightly lower (since the loan is secured about something of value you own) but if you missed repayments, you'll be putting your assets at risk.
As such, you need to seriously consider your options before taking out a consolidation loan on bad credit, possibly with the assistance of a loan broker with experience of the best rates and loans available.
In Summary A consolidation loan...
It's important to note that a consolidation loan is NOT the same as employing the services of a debt management company.
Whereas using debt management means that your creditors are dealt with individually to help reduce the amount you pay to them, a consolidation loan is simply a loan that's large enough to cover all your debts in full and then spread that amount over a longer period of time to help reduce your monthly outgoings.
They might sound similar, but they're not; one's a service, one's a loan.
That isn't to say that a consolidation loan isn't a good idea though - it's just important to know what it is you're applying for.
Since they can be used to combine, say, several credit or store cards with individual inflated interest rates into a single loan with one lower rate, a consolidation loan can actually be the ideal answer to lowering the amount you're spending every month on debt repayment.
However, since it is a repayment, you need to be sure that you can afford such a loan before taking one out as missed payments could put your into further financial difficulty.
If you can't afford one (or, in the case of those already with bad credit, can't get approved for one), then debt management might be a better option.
Certainly, if you do happen to have a bad credit history, then you may find that lenders will only offer you a secured consolidation loan which has to be taken out against collateral such as a house or car.
This may mean that your interest rates are slightly lower (since the loan is secured about something of value you own) but if you missed repayments, you'll be putting your assets at risk.
As such, you need to seriously consider your options before taking out a consolidation loan on bad credit, possibly with the assistance of a loan broker with experience of the best rates and loans available.
In Summary A consolidation loan...
- Isn't the same as using a debt management company!
- Can be used to combine multiple debts into a single monthly payment
- Could possibly help lower your outgoings and interest rate on the debt
- Needs to have repayments kept up on it in a responsible manner
- May only be available as a secured loan if you have a bad credit history
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