Is debt consolidation right for you?
When is debt consolidation a good idea?
Debt consolidation could help people organise their finances and reduce the amount they repay each month. We explore whether it could be a good option for you.
If you’ve heard of debt consolidation but you’re not sure whether it’s right for you, our guide aims to give you a good understanding of how it could help.
To decide if debt consolidation is the right path, it’s worth researching how exactly it could benefit you. We’ve outlined the main advantages of debt consolidation, so you can see if it’s an avenue that could help.
Put simply, debt consolidation means you repay and close your existing credit accounts with one lump sum (a consolidation loan). You’ll then only need to repay this loan, which can often be cheaper than managing multiple accounts.
Debt consolidation could help you if:
You’re dealing with multiple lenders
Repaying multiple high-interest loans or credit cards could be expensive. Depending on the type of credit, the cost of borrowing can shoot up if the loan isn’t repaid quickly. For example, payday loans are designed to be fully repaid within a short period of time – and if they’re not, they can become very expensive.
Combining your high or rising interest rates under a lower rate could be a more affordable way of repaying your debts. Since secured loans tend to have lower interest rates compared to personal or payday loans, you could potentially save money by using a secured loan to consolidate your debt.
Your debts have high interest rates
Repaying multiple high-interest loans or credit cards could be expensive. Depending on the type of credit, the cost of borrowing can shoot up if the loan isn’t repaid quickly. For example, payday loans are designed to be fully repaid within a short period of time – and if they’re not, they can become very expensive.
Combining your high or rising interest rates under a lower rate could be a more affordable way of repaying your debts. Since secured loans tend to have lower interest rates compared to personal or payday loans, you could potentially save money by using a secured loan to consolidate your debt.
You want to lower the amount you pay each month
Repaying lots of debt each month can leave you with little to spend on anything else, such as any emergency or unplanned costs. Debt consolidation could help you free up your finances by reducing your monthly repayments.
You could do this by using a debt consolidation loan to cover your existing debts and spreading the cost over a longer term. A longer loan term means lower monthly repayments, helping you benefit from more disposable income each month.
Bear in mind that a longer loan term means you’ll pay more interest payments in total, which could end up more expensive by the time you’ve fully repaid the loan. However, if lowering your monthly costs now is a bigger priority, debt consolidation could be a good option for you.
Your credit card interest is building up
Tired of your interest payments building up? If you have money on a credit card and you’re only making the minimum repayment, you may find that the balance is not reducing.
If you cleared your credit card balance with a secured loan your repayments will generally be the same amount each month. This can make it easier to stick to a budget, as you’ll always know what your debt repayment will be each month.
You’re struggling to keep up with repayments
Falling behind with repayments can be stressful. Missing payments can lead to legal action, with lenders issuing default notices and CCJs if you can’t repay the bills. These can remain on your credit report for up to 6 years and can negatively impact future applications for finance.
Debt consolidation could put an end to dealing with your lenders. When consolidating your debts, it is a good idea to close down your existing accounts for good. Doing this will mean your lenders won’t contact you anymore. Instead, you’ll only need to focus on repaying your new consolidation loan – which could be more affordable and manageable.
You’re trying to be completely free from debt
If you’d rather see the back of your debts for good, debt consolidation can help you get there. While having available credit isn’t a negative thing, some people may prefer to completely close their accounts to avoid temptation. Using one debt consolidation loan to cover the total cost of your debts – and nothing else – can prevent you from falling into old habits.
Debt consolidation can provide a clear road to becoming debt-free, without the temptation to use any more available credit.
So, is debt consolidation right for me?
Whether you want to streamline your repayments or free up your finances, a debt consolidation loan could be the right solution for you.
Before you commit to debt consolidation, it’s always worth checking to see if you’re actually saving money by moving your repayments elsewhere. Factor in the new interest payments over the total length of the loan and see if it’s worthwhile for you.
Why consolidate debt with Evolution Money?
At Evolution Money, we believe in making debt consolidation as simple as possible. We’ll make sure your secured debt consolidation loan is designed to work for you and your finances. From helping you reduce your monthly outgoings to finding the best repayment plan for you, our team always put you first.
We’ll even take care of settling your accounts and dealing with your lenders. Speak to our friendly advisers today and see how a secured debt consolidation loan could help you.
Think carefully before securing debts against your home your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
