Debt Consolidation: What You Need To Know

Debt consolidation is a way of combining several existing debts into one payment plan with a single interest rate. Our latest blog will talk you through debt consolidation in more detail to help you understand whether it would be a good option for you to deal with your debts. 

What is a Debt Consolidation Loan?

A debt consolidation loan can be used to pay off any debts you have. It allows you to move all your debt into one place so you’re only dealing with one lender and making one affordable payment every month. These can include store cards, credit cards, overdrafts, and other loans.

What’s The Difference Between Debt Consolidation and Debt Management?

Debt consolidation would involve you taking out new credit, such as a consolidation loan to pay off your existing debts. This would simplify your payments down to only making one per month. Debt management is where you contact a debt management plan provider like us. It involves us negotiating affordable payments to your creditors and helping deal with creditor contact, including freezing interest and payments on your debts. 

Types of Debt Consolidation Loans

There are two variations of debt consolidation loans: secured and unsecured loans. Secured loans are tied to an asset like your home, which could be at risk if you do not make the repayments. Unsecured loans are not tied to an asset, but tend to have higher interest rates and lower qualifying amounts.

What Debts Can I Consolidate?

Is It a Good Idea To Consolidate My Debt?

It depends on your financial situation and the different types of debt you have. You could have a couple of credit cards, a personal loan and an overdraft. If each has a different interest rate and payment date, it can be difficult to keep track of all your outgoings. So it might be a good idea to roll them all into one monthly payment, especially if the new consolidation loan is cheaper to pay back in one payment than all the different interest rates you have on existing debts. But it’s worth looking at your debts individually to see if it makes sense. List your debts one by one to get the total amount of debt you owe. From there you can see if it would be cheaper to get a debt consolidation loan, and continue making your payments individually, or you may be eligible for a debt solution that could write off your debt. 

Benefits of a debt consolidation loan

  • You could get a new loan with a lower interest rate.
  • It may be simpler to manage making one monthly payment to one lender than juggling multiple debts with different lenders.
  • You may be able to reduce your monthly repayments.

Risks of a debt consolidation loan

  • You could end up paying more overall if the interest rate is higher or you will repay it over a longer period of time. 
  • You need to check if there are any early repayment charges on your existing debts.
  • Applying for a new loan will be recorded on your credit report.

What Other Options Do I Have?

A debt consolidation loan is just one way to repay debt so it’s worth exploring all your options.

  • 0% Balance Transfer Card – this might be a good option if you’re paying high interest on credit cards and you’re able to get a 0% interest balance transfer credit card. 
  • Remortgaging – If you have equity in your house, you may be able to take money out of your home and pay back your debts when remortgaging.
  • Savings – Do you have savings you can use to pay back your debts? The interest you pay on a loan is usually higher than any interest you earn from savings. 
  • Debt Management Plan – we are able to set up a debt management plan for you, just get your debt advice online to see if you qualify. 

Who Can Help Me Choose the Right Option?  

If you’re thinking about options for your debts, get your no-obligation debt advice today to see what debt solutions you would qualify for. You can start online anytime using our online debt advice tool. If you’d prefer, you can speak to the friendly and experienced debt advisors at Angel Advance. We help people daily with their financial goals, offering no-obligation debt advice day and night! Visit our online debt advice tool for help with debts, or contact our team via email, phone or WhatsApp today.

Don’t have an account with us and are looking for debt advice?

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Angel Advance provides online debt advice to get you back on track and make your finances more manageable.

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