Where can debt consolidation loans help?
Where can debt consolidation loans help?
A debt consolidation loan can be used to cover a range of existing credit – and particularly the following:
Credit card debt
If you have debts on credit cards
with high APRs, you could be
repaying more than you need
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Overdrafts
The rules on agreed overdrafts
recently changed, and interest
rates often reach a whopping 40%
Debt consolidation loans: The pros and cons
Debt consolidation loans: The pros and cons
Advantages
Reduce monthly repayments,
especially if you have quite a few outstanding debts all accruing interest
Lower overall interest,
because debt consolidation loans tend to have lower APR than payday loans or some credit cards
Easier to keep track of your debt,
because managing one repayment a month is much more straightforward
Boost your credit score,
as it’s easier to make one monthly repayment on time and in full
Disadvantages
Missed payments have consequences
and you will hit your credit score if you don’t meet your responsibilities
Set-up fees can be pricy,
as your existing creditors may charge you for settling up early or for transferring the balance of your loans
You may lose your home or car.
If you can’t keep up with your repayments on a secured loan, your collateral may be repossessed
Other options are available,
including 0% balance transfer credit cards, which might suit someone who has more modest debts
How to get a debt consolidation loan
How to get a debt consolidation loan
Compare debt consolidation loans and find the best deal for you
Work out what you owe
Do the sums and find out exactly
what your debts are worth in
total, with outstanding interest
Check your eligibility
Enter a few details about you and
your finances into MoneySuperMarket’s
Eligibility Checker tool
We show you the loans you're most likely to get
We show you the loans you're most likely to get
Our Eligibility Checker tool preserves your credit score by showing you which loan offers you're most likely to be accepted for, and helps you avoid those you may not receive. Getting declined for a loan application can damage your credit score, which makes it harder to borrow money in the future – and no-one wants that.
Accurate results
Accurate results
Check your eligibility
Check your eligibility
Guaranteed rates
Guaranteed rates
What is a debt consolidation loan?
A debt consolidation loan is a new personal loan taken out to repay all, or some, outstanding debts through a single monthly repayment.
What’s the difference between secured and unsecured consolidation loans?
Most debt consolidation loans are unsecured, which means you can borrow the money without having to put up a valuable possession of yours such as a car or home as collateral.
If your credit history is poor however, lenders might ask you to secure your loan. This means that if you miss enough repayments, your home or car could be repossessed.
Do consolidation loans hurt your credit score?
Your credit score isn’t harmed by taking out a debt consolidation loan, and paying it back in the agreed manner each month should even improve your rating.
However, as with all loans, if you miss repayments your score will be affected.
Can I use a normal personal loan to consolidate debt?
This is possible, though some personal lenders prefer you to use the money they lend you for a set list of purposes. Some of them don’t want you to use a personal loan for debt consolidation. It’s a good idea to check with the provider before you apply.
What are the alternatives to debt consolidation loans?
Consolidation loans can be a good way of getting on top of your debt, but they aren’t right for everyone. If you only have a few debts, and if they already have attractive APR, it might be worth concentrating on paying them off as they are – especially if you are organised enough to keep on top of them each month.
For modest credit card debts, a 0% balance transfer credit card might be a good alternative.
If your debts are substantial, you could ask your creditors to put together a debt management plan or a debt settlement.
Bankruptcy should be a last resort, because you legally declare that you can’t pay your debts. It’s only a good idea if you have exhausted all other options.
Can I get independent advice about debt consolidation loans?
The Money Advice Service is an independent body which offers free and impartial advice to people struggling with debt. Call 0300 500 5000 or visit them online.
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