What is debt consolidation?
Debt consolidation means combining your debts together into one more easily manageable monthly sum. This can involve an external lender, to whom you pay one monthly payment in place of several payments to multiple parties. They will then distribute the necessary sums among your creditors.
For those struggling to cope with keeping track of amounts owed to various creditors and keeping up with repayments, debt consolidation can be a useful way to simplify your finances and help you gain more control over getting out of debt.
It is an alternative to other forms of debt management, such as IVAs or declaring bankruptcy.
Debt consolidation loans can be arranged with lenders, who can manage contact with your creditors as well as your repayments.
How can debt consolidation help me?
Debt consolidation can help those struggling to pay their debts - especially if these are spread across a large number of creditors.
If you find that meeting multiple monthly payments is becoming an increasingly difficult task, debt consolidation loans are one of the options available to you - and can help you to avoid the stigma often associated with bankruptcy.
Debt consolidation loans can ease the pressure of debt by simplifying repayments and transferring contact with creditors to your lender, making your finances less complicated and therefore reducing stress.
Furthermore, there is the possibility of reducing the amount you pay per month by extending the repayment term. So, if you are finding your current monthly payments unmanageable, you could find debt consolidation helps to make your repayments more realistic.
You may also benefit from a reduction in the amount of interest you are paying - especially if your debts are on credit or store cards.
Meanwhile, you could find that repaying the loan without accruing further debt could improve your credit rating.
Am I eligible for debt consolidation loans?
Before securing debt consolidation loans, your lender will need to assess your finances.
Taking into consideration the amount you wish to borrow and how long it will take for you to complete the repayments, they will also look at your credit history and the level of debt you are in.
Should you have a bad credit history, they may request a secured loan. This involves reducing the lender's risk by using your property as their security. If you choose this option, it is essential that you are certain you can keep up your repayments - or you will find your home at risk.
Where can I find out more about debt consolidation loans?
Debt consolidation information can be gained from potential lenders, while you can also choose to discuss your options with independent advisory bodies, such as the Debt Advice Trust.
Authorities such as the Financial Services Authority offer unbiased information about various lenders and their services, which can help give you a picture of what you should be looking for.
Meanwhile, if you are struggling with other areas of your finances, such as putting away funds for the future, you may find using a pensions calculator or a retirement calculator a useful exercise - and a good first step in planning your retirement.