What are debt consolidation loans?
Debt consolidation is when you take out a personal loan as a way of consolidating existing debt. It works by repaying all outstanding debt through a single monthly payment.
There are a number of debts you can use debt consolidation loans to pay off. This includes store cards, credit card repayments, and existing personal loans.
How do debt consolidation loans work?
If you decide to take out a debt consolidation loan, all your borrowing is moved into one single loan and payment plan.
It means you will only need to pay your consolidation loan provider each month, as opposed to having to manage lots of separate payments to a number of lenders.
This is usually an unsecured loan, which means that it is not secured against any property you have.
Instead, other affordability checks are implemented by the debt consolidation provider to ensure you can manage loan repayments.
What are the benefits of debt consolidation loans?
There are a number of advantages when it comes to debt consolidation loans. For example:
- Reduces your monthly outgoings
- Improves your money management skills
- Simplifies the process of paying back your debts, giving you some peace of mind and making it less overwhelming to deal with.
- It could help to improve your credit score if providers see you are managing your finances effectively and keeping up with your debt consolidation loan repayments.
What are the criteria to apply for a debt consolidation loan?
A lender will decide if you are eligible to apply for a debt consolidation loan by looking at how much debt you have outstanding already, as well as your credit score.