What is a debt consolidation loan all about?

A debt consolidation loan is a way of paying off all your existing debts by taking out a new loan or remortgage that’s big enough to pay them all off in one go.

Why should I consider consolidating all my debts?

Consolidation can increase your disposable income by reducing your monthly repayments. It can also help make your life much simpler. The more debts you have, the harder it is to keep track of them – and making late payments (or missing out on them completely) can affect your credit rating and eventually lead to charges, higher interest rates, or even legal problems.

How can a debt consolidation loan lower my monthly payments?

It can help lower your monthly payments in two ways.

First, you can make arrangements to pay the loan back over a longer time period. Since you’re paying it back slowly, each monthly payment will be lower. However, since you’ll owe money for longer, your interest payments will be stretched out, resulting in you having to pay more in the long run.

Second, many of these unsecured debts (such as store cards and credit cards) come with high interest rates. If you can find a consolidation loan with a lower interest rate, this can also reduce your monthly payments, depending on how quickly you’re paying off the consolidation loan.

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