Is a debt consolidation loan right for me?
That’s the question on the lips of many consumers who may have found themselves in debt recently.
There are many great resources online which offer information and guidance on such topics, including free forums full of financial advice experts.
The trouble is, a lot of the information available online simply isn’t very good. In fact, it could be classed as down-right unintelligible.
Let us help you answer that big question then.
Whether a debt consolidation loan is right for you will likely come down to your personal circumstances, much the same with all types of loans. A debt consolidation loan is different to a regular loan as this type of loan is taken out to bring all existing debt together to create one single debt.
The major upside to a debt consolidation loan is that there will be just one repayment per month versus several. This will reduce stress and, in cases, your total repayment amount due to a lower interest rate.
If you are considering a debt consolidation loan, here are 3 ways to figure out whether one is right for you.
1. Is a debt consolidation loan within your budget?
The main reason for taking out a debt consolidation loan is because you may be finding it difficult to keep up with current repayments on your debt.
A debt consolidation loan will combine all of your existing debt in to one debt. This means that whilst your repayments will be made easier, you will still be paying back the total amount owed per month – or slightly less – depending on your consolidation plan.
We recommend working out what your monthly budget per month is before taking a debt consolidation loan. This will for the most part erase any doubts you may have.
2. If your circumstances changed for the worse, could you still repay?
Setting up a consolidation loan means setting up a new contract with a lender. Whilst debt consolidation loans and their lenders have your best interests at heart, if your circumstances changed, you will still have to repay the loan.
A good way to find out whether you could repay your loan if your circumstances changed for the worse is to – with your budget at hand – work out how long it may take you to find another source of income, how long you can survive on savings, and other ways you could make the money to repay.
Having a contingency plan for such events is always recommended.
3. Shop around before deciding
It is always best to get a basic overview of the financial products / services available to you for debt management. Debt consolidation loans are just one piece of a huge debt puzzle, and other services to check out include fast-track voluntary arrangements if you are already bankrupt and debt relief orders if you simply have no way of paying off your existing debt.