A debt consolidation loan involves taking out one new loan to pay off a range of existing debts. For many people, debt consolidation loans provide an expedient way to repay other debts however it is crucial to consider the implications before taking the plunge.
There are three types of debt consolidation loans: secured loans, unsecured loans and remortgaging. Each of these debt consolidation loans could be appropriate to your financial circumstances, so it is crucial to ensure you are well-informed of your options before choosing which suits you best.
Advantages and disadvantages of debt consolidation loans
Debt consolidation loans could help you regain control of your finances in a number of ways. For instance:
- Your debts may be repaid over a shorter period of time
- You will have one repayment each month to manage, and one interest rate to pay.
- You will only have to deal with one lender
Debt consolidation loans may also bring certain disadvantages - especially if you do not choose a loan that suits your financial needs.
- You could end up making higher repayments, and over a longer period of time
- You may have to pay extra charges for setting up the new consolidation loan
- A secured loan or remortgage is held against your property, which could be seized if you can not meet your repayments
Find out more about other debt management solutions
Legal Advice Helpline can provide you with access to specialist advice regarding debt and other forms of debt management solutions such as Individual Voluntary Arrangements, Debt Management Plans and Bankruptcy.