Category: Debt

Is it Worth Getting a Debt Consolidation Loan?

A debt consolidation loan will enable you to roll all of your loans into one. Then you will just have one loan to repay each month. It could help to make things simpler as you will not have to make payments to lots of different companies, but is it worth it?

Often a debt consolidation loan with have a higher interest rate than some other types of loan. It is unlikely to be dearer than a payday loan or unauthorised overdraft but it will be more expensive than a personal loan, for example. This means that if you are thinking of getting one, you should look at how much more it will cost you and whether you think that is worth it. It is not always easy to calculate the cost of a loan though as if it is a credit card, for example the cost will depend on how much you pay off each month, as the longer that you take to pay it off, the more expensive it will become. Do your best though to work out the costs of your current debts and the costs of a consolidation loan and consider whether you think that it might be worth looking in to.

Cost is not the only factor to take into consideration though. Some people find it easier to manage if they just have the one debt. They will feel better knowing that they only owe money to one company and that they only have one repayment to concentrate on each month. However, this can be dangerous too. If you have your credit card, overdraft and other loans cleared and all put into one, then you will be able to start borrowing using those means again. It is likely that you will still have an overdraft facility and a credit card, but now they will be paid off and ready for you to use. If you think that you will be tempted to start using them and therefore build up even more debt then you need to do something about it. Cut up the credit card, ask the bank the reduce your overdraft limit and budget hard, keeping a close eye on everything that you are spending so that you do not start getting into more debt. It can be difficult but if you want to get out of debt, then it can be a good way.

If you want to try to pay the debt off as soon as possible you need to check that you will be able to pay off extra form your debt consolidation loan. Some will allow this, some will charge for it and others may not allow it. You can pay a credit card or overdraft off whenever you like and so it may be better to stick with the loans you have if they have the facility to allow you to pay things off early. Paying off early will not only mean that the debt is gone sooner but that you will be free of the worry of it. It will also be cheaper as the longer you have the debt the more you will pay out in interest payments.

If you do decide to get a loan then make sure that you compare the different ones available. You want to make sure that you get the best one for you and that not only means the cheapest one. Obviously the cost is a big factor but you also want to make sure that they fit other requirements that you may have. You need to consider their brand, the customer service, how flexible they are and their charges for late payments. You might like the idea of only choosing a lender that you have heard of. You may even want to read reviews of them and the loan you are considering to see what other people think of it before you decide who to choose. It is always wise to speak to their customer services, find out more about the loan and at the same time you will get an idea of how helpful they are. It is also worth finding out how flexible they are, whether you can repay early or if you could take a payment holiday if you find yourself short of money or change the amount of the repayments or the term of the loan. It is also vital that you find out how much the charges are if you do happen to miss a payment or pay it late or for anything else. This will take time to do, but it is a big decision that you are making and so it is worth finding out as much as you can so that you can make the right decision for you. Take your time and you will know that you have done your best.