There are many different reasons it could be beneficial to look at consolidating your debts. Whether you just want to simplify the repayment process, or are looking to save money by consolidating your debts. It is definitely something to look into if you have a number of outstanding debts. Particularly if these debts are with a number of different credit providers. Here’s everything you need to consider when it comes to consolidating your debts.
What Is a Debt Consolidation Loan?
Essentially, a debt consolidation loan combines multiple debts into a single new loan. This makes it easier to meet the repayments, having everything in one place. Also, there are ways you can go about it to ensure you are paying less altogether.
The goal: to reduce your repayments by paying out your existing debts and rolling balances into a single, larger loan. This can mean that you only need to pay one, lower interest rate compared to the previous, separate loan. The results? Less money being paid overall and a loan that is much more easily managed. So it is possible that you can save money by consolidating your debts. But you do need to make sure you do it the right way and know exactly what you need to be looking out for.
But How Can You Save Money By Consolidating Your Debts?
If you have more than one loan, then debt consolidation or refinancing your loan can make it much easier to handle your repayments. Having everything together in one place can mean it is much easier for you to see what position you are in. This helps to clear up which repayments you need to make and when. But the big question is, can you save money by consolidating your debts?
The short answer is yes. But before we look into this, it’s important to know what to look out for when you are considering consolidating your debts.
Different Types of Debt Consolidation Loans
There are two different types of loans you can take out. It is important to weigh up which one is the best option for you and your circumstances.
Secured Debt Consolidation Loan
This refers to a new loan that is secured by an asset, such as a home. By offering up a large asset such as this, it takes away the risk from the lender and allows them to offer you the new loan.
Unsecured Debt Consolidation Loan
With this type of loan, nothing is offered up against the loan, which means there is a lot more risk for the lender. These loans often come with a much higher interest rate as the lender is taking on all the risk.
What to Avoid With Debt Consolidation
Like most financial decisions, this one doesn’t come without its own risk. There are many different companies out there offering debt consolidation options. If you are truly looking to see if you can save money by consolidating your debts, then it is important to consider the following:
- Avoid companies offering a deal that is too good to be true. They generally are! Don’t trust a company that isn’t licensed, rushes you, won’t openly discuss the repayments, asks you to sign blank documents, and so on. These are all warning signs.
- Make sure you will actually be paying less. The deal may look good from the outside. However, when you begin adding up the costs of fees, and other costs that crop up, it may end up costing you more in the long run.
- Consider whether you want a secured or unsecured loan. The secured loan comes with a lower interest rate but does put your property at risk. Consider whether you are in a position to offer up your home as an asset, or whether it is more worthwhile paying the higher interest rate and taking away this risk.
- Look at the loan term. This describes the amount of time the repayments have to be made in. Interest rates are calculated daily, so the longer the term of your loan, the more interest you will be playing. So factor this into your decision.
- Don’t be tempted to take on more debts. If you manage to free up money with debt consolidation then it can lead to you spiralling further and further into debt. This can be detrimental to your financial situation.
Get Professional Debt Consolidation Advice
If you are at the stage where you are looking at whether you can save money by consolidating your debts, then it is important that you get the right financial advice before going ahead. The expert team at Debt Consolidation will be able to look into your individual circumstances and let you know exactly how you can save money by consolidating your debts.