Davids Finance Corner

Consolidating your debts into one monthly payment with a debt consolidation loan can be a great way of simplifying your finances, making unsecured debt repayments generally easier to manage.

There are a number of advantages to taking out a loan like this. However, you should consider whether it is the right option for your finances at the moment before applying, as there are some potential disadvantages you may not have considered. You can get further debt advice now if you like.

Debt consolidation loan advantages

• If you find a debt consolidation loan with a lower APR (Annual Percentage Rate), you could lower the amount you pay back overall.
• If you spread the loan over a longer period you could lower your monthly payments, freeing up money in your monthly budget.
• Having only one debt payment every month should make your budget easier to manage.
• You’ll only have to deal with one lender instead of many, which should be less stressful.
• As you’ll only be making one monthly payment, it should be easier to avoid running into arrears or running up charges for missed payments.
• With many debts, it’s difficult to know exactly when you’ll be debt-free. With one unsecured loan to worry about, you should also have a clear idea of when you will clear it.

Debt consolidation loan disadvantages

• It’s not always possible to find a debt consolidation loan with a lower APR. The rate you get will depend on your provider, your credit history, the amount you borrow and whether the loan is unsecured.
• Spreading your debt consolidation loan over a longer period will increase the amount of interest you pay overall.
• You must make the same payment every month – there is no flexibility. So if your income changes from month to month, a debt consolidation loan probably isn’t for you (you might be better off continuing to repay a credit card debt, for example, as you’d have the option of making just the minimum payment when necessary).
• Be aware that freeing up credit cards with a debt consolidation loan can tempt even those who are really strict with their money to borrow more.

If you’re already struggling to make your debt repayments, there are other ways to deal with debt that may be more suitable, which you can find out about when you visit debt advice now.