If people got a long list of credit cards with high balances and numerous personal loans debt consolidation loans is a way of getting back control of their finances. It is an option that allows people to combine all their debts into one single monthly payment.
Debt consolidation loan is a new loan people take out to pay off all their old debts. The result is one manageable monthly payment and the possibility of saving hundreds of pounds in interest.
The Benefits of a Debt Consolidation Loans
It’s not the perfect solution for anyone with spirally debt, and it’s not a solution for everyone. However, there are several benefits worth considering.
- Makes Debt Easier to Manage – having one loan to repay is easier and simpler than trying to pay off several loans at the same time. There’s less chance of incurring late penalty fees or missing payments.
- Possibility of Lowering Monthly Payments – this type of loan often has lower monthly payments than the cumulative monthly payments of the debts being replaced.
- Lower Risk of Damaging Your Credit Rating – use this type of loan responsibly and there is little chance of it damaging your credit rating.
- Possibility of a Lower Interest Rate – this type of loan often comes with a much lower APR than credit cards, for example. If the interest rate is lower it means the financing costs are also reduced.
There are, however, some disadvantages. You may have to pay a prepayment penalty on your old loans. If your credit rating is poor, you may struggle to find a suitable loan. To make good use of this type of debt solution, you need to change any unhealthy financial habits, or you risk losing control of your finances again.
How to Apply for a Debt Consolidation Loans
To apply for a loan of this kind you have to be 18 years or older. In order to qualify for the best interest rates you need excellent credit history and a low debt-to-income ratio. If your credit history is poor it is still possible to get a loan, but you can expect to pay a much higher interest rate.