What is a Debt Consolidation Loan?

Did you know that the global debt is approaching $300 trillion? This number includes government debt, house-related debt, bank debt, and more.

If you have some debt, you’re not alone.

But, you should still focus on paying back the debt that you do have. It’s likely that you’re racking up unnecessary interest payments as well as late fees and other charges.

It’s time to bring this to a stop with a debt consolidation loan, IVA or debt management plan.

But, what is a debt consolidation loan and how can it help you lessen your debt? Keep reading to find out about online debt consolidation programs and how you can apply.

What Is a Debt Consolidation Loan?

debt consolidation loan is a kind of personal loan that helps people like you pay off high-interest debt. Most people use these kinds of loans to pay off credit card debt, but you can use them for all kinds of debt.

As the word “consolidation” implies, this kind of loan helps you pay off one loan that covers multiple debt sources. In other words, you can pay off several kinds of debt through one loan.

Instead of paying multiple times in the same month to pay off different lines of credit, you can make one payment towards this one loan.

All in all, a debt consolidation loan makes paying back your lines of credit easier. And, depending on the terms and conditions of the loan, it may also help you save time and money.

Is Debt Consolidation a Good Idea?

There are a few considerations that you should make before taking out a debt consolidation loan. 

First, you have to consider your current credit score. If you already have a good credit score, you can get favourable terms for your debt consolidation loan. This means that you may be able to get a lower interest rate and better terms with a credit score higher than 670.

Second, you have to consider whether you have high-interest debt. The only way that a debt consolidation loan works is if the interest rate of the debt consolidation loan is less than the interest rate of the best that you have.

The average personal loan interest rate is 9.41%, and the average credit card interest rate is about 16%. So, it’s likely that your loan is going to have a lower interest rate.

However, you should check this to make sure that you aren’t losing money.

Third, you have to consider your current repayment plan. (If you don’t have a repayment plan, you need one.)

Your repayment plan should outline how you’d pay off your debt without a personal loan. Decide how much time it would take for you to pay off your current debt based on your income and savings.

You may find that your debt repayment plan is better than a debt consolidation loan. Or, you may find out that you need a loan to help you get everything paid off.

When Debt Consolidation Loans Don’t Work

While debt consolidation loans sound like a dream, it’s not for everyone.

If you don’t plan to make any changes to your spending habits, you’re going to end up in a worse financial situation than when you started. You’ll pay off the money on your credit cards, but you could just rack up even more money on your cards while having the loan to pay off. 

If you’re going to get a debt consolidation loan, you need to change your spending habits so that you don’t end up in this situation again.

Another reason not to get a debt consolidation loan is if you don’t have a lot of debt. If you think that you can pay off your debt in the matter of a few months or even a year, a debt consolidation loan isn’t worth it.

You may get a lower interest rate with the debt consolidation loan, but the term of the loan is going to be much longer than the time that it would take you to pay off the debt yourself.

Plus, all of the time researching, comparing, and applying would be wasted.

Debt Consolidation Loans for People With Bad Credit

It’s possible to get approved for a debt consolidation loan with bad credit, but you’re not likely to get good terms. In fact, the interest rate on the loan may be greater than the interest rate on the line of credit that you’re trying to pay off.

So, it won’t be worth it to get the loan in the first place.

However, it may be worth the application.

You can try applying with your current income and credit score to see what kind of offers you get from different lenders. When you’re reviewing offers, don’t settle for any interest rate.

You need to consider whether you’ll be able to make the required monthly payments on the loans. If not, you’ll end up digging a bigger hole and getting yourself into more trouble.

Is Debt Consolidation a Good Idea?

Depending on your current financial situation, you may benefit from getting a debt consolidation loan.

Maybe you’re trying to protect your good credit score, or maybe you had an emergency cost come out of nowhere. Maybe someone else in your family caused the debt or maybe you lost a regular form of income.

Whatever the situation, it’s worth your consideration.

Although, there may be a better option for you if a debt consolidation loan isn’t what you’re after. There are plenty of other ways to become debt-free:

  • Debt management plans
  • Individual voluntary arrangements
  • Debt relief orders

Before you commit to a loan, you should check out these options.

Debt Consolidation Loan Online

So, what is a debt consolidation loan? Well, it’s a great way to become debt-free without having to pay thousands of pounds in fees and charges.

However, you should consider all of your options before settling into a loan.

Our team has helped thousands of people gain back control of their lives. You could be one of them.

Get started with our team today.

Proud to Support

Supporting Shelter
Supporting Mind
Living Wage Employer
Become Debt Free Logo

Contact Us

Tel: 0113 237 9500
info@becomedebtfree.co.uk
Re10 (Finance) Ltd, York House Unit 4, Gemini Business Park, Sheepscar Way, Leeds, LS7 3JB
Trust Pilot Reviews
Insolvency
R3 Business Accreditation
Insolvency Practitioners Association Accreditation
Customers can get free debt advice from the Money Advice Service – an organisation set up by the Government to offer free and impartial advice to those in debt. For more information from the Money Advice Service visit www.moneyadviceservice.org.uk. MAS is part of the Money & Pensions Service. We are not affiliated with MAS in any way.

Become Debt Free is a trading style of Re10 (Finance) Limited Registered Number 04651137.  Data Protection Act Registration Number – Z8613095

Become Debt Free specialise in providing and administering Individual Voluntary Arrangement (“IVA”) solutions to individuals based in England, Wales and Northern Ireland.  We do not administer Debt Management Plans, Debt Relief Orders, or any other debt solutions.  We only provide advice after completing or receiving an initial fact find where the individual(s) concerned meets the criteria for an IVA, therefore, all advice is given in reasonable contemplation of an insolvency appointment.

* To qualify for debt write off in an IVA with us, you must have a minimum of £7,000 of qualifying unsecured debt owed to two or more creditors.  The amount of debt write off is based on your own personal circumstances – typically this could be up to 85% of what you owe; and this has been achieved by over 10% of our customers who have successfully completed their IVA’s in the last 12 months.  The amount of debt write off differs for each customer and is dependent upon their individual financial circumstances and subject to the approval of their creditors.

Andrew Bowers is authorised in the UK to act as Insolvency Practitioner by the Insolvency Practitioners Association.

 

Scroll to Top