When Can a Consolidation Loan be Right for You?

This article was provided by Tom Chapman, content manager at Consolidation Express. A UK-based consolidation loan broker, the company – and its advisors – have a wealth of knowledge when it comes to this debt solution.

Although life seems to be returning to normal, the economy is still arguably in a precarious position. Also, it is estimated that up to two million brits have recently lost their jobs. As a result, we could use all the financial support we can. If lenders are making demands for money you simply do not have, then you may be looking for a way to get on top of your debts. Although there are many out there, one which may have come up is debt consolidation. Like any financial solution though, this has its pros and cons. So you can make an informed decision about whether consolidation is right for you, we’ve detailed when this might or might not be the right solution.

There’s No Such Thing as Government Debt Consolidation

It’s important, when searching for a debt consolidation loan, that you find a company which provides you with a good deal and has your interests in mind. One way to get a feel for an organisation is if they’re offering government debt consolidation. Just type this phrase into a search engine and, chances are you’ll see several firms offering this solution. Unfortunately, government debt consolidation does not exist.

Although there are government-related debt solutions, such as bankruptcy, debt relief orders, and IVAs, politicians have yet to officially endorse consolidation loans. Those organisations which continue to use this phrasing are probably just trying to make themselves seem more authoritative than they are, and could be trying to mislead you.

When Would Debt Consolidation Be Right For Me?

Broadly, debt consolidation could be right for you if you fulfil the following criteria:

You want to simplify your finances: Juggling creditors, interest rates, and payments can be complicated – and that’s an understatement. With a consolidation loan, you use the funds provided to close accounts with creditors and leave yourself making just one payment a month (to the loan provider).

This means you have one monthly payment to manage, one interest rate to monitor, and one lender to stay in touch with. This can make your financial situation much easier to manage. At the very least, you shouldn’t need to worry about calls from multiple lenders every day, granting you more time to focus on tasks you actually want to do.

You can afford to make repayments towards your debts: Fundamentally, debt consolidation is a type of loan and loans need to be repaid. Although you’ll hopefully have a deal which grants you better interest rates and leaves you paying less each month, monthly payments must be made.

As a result, you should have a sustainable source of income which can cover the cost of repayments. If not, you may default on the loan, which could put you in a precarious financial position.

Your Credit Score is Bad and You Want to Improve it

Although the world of finance is traditionally closed to those without good credit histories, consolidation loans are a touch different. In fact, finding consolidation loans for bad credit is relatively straightforward.

Perhaps it’s because, fundamentally, you’re trying to get on top of your debts. Alternatively, it could be due to consolidation being sometimes viewed as more a money transfer service rather than taking out a new line of credit. Regardless, debt consolidation companies are generally more open to customers having bad credit than other financial institutions.

Speaking of which, debt consolidation can ultimately be beneficial for your credit score. By making payments on time, closing accounts with your creditors, and decreasing your credit utilisation ratio, you could see improvements in your rating. This will take time, but debt consolidation could be one way to get on top of your credit score again.

When Wouldn’t Debt Consolidation Suit Me?

A debt consolidation loan might not be right for you if:

You Want to Reduce or Write off Debt: Unlike some debt solutions out there, consolidation loans don’t reduce or write off your debts. You will still have the same amount to repay, but only to one lender. If you actually want to write off what you owe, then you should consider an alternative solution such as an IVA.

You Don’t Have Money Available to Pay Lenders: If you realistically don’t have the funds available to make even small payments towards your debts, then you may default on the loan. If this situation seems likely to occur, you should consider obtaining specialist debt advice on the best way to get on top of your finances.

This article was provided by Tom Chapman, content manager at Consolidation Express. A UK-based consolidation loan broker, the company – and its advisors – have a wealth of knowledge when it comes to this debt solution.