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For many of us, debt can be a huge source of uncertainty and anxiety. It can creep up and overwhelm even the most financially savvy among us. But if you’re wrestling with a spiralling debt problem, don’t panic - you don’t need to tackle the issue by yourself. There are a number of options you could consider to get your finances back under control, one of which is a debt consolidation loan.
Whether you're dealing with multiple credit card balances, personal loans, or any other form of unsecured debt, combining them into one manageable loan could be just what you need to simplify your finances – and give you the breathing space you need to get on with life.
So, join us as we take a closer look at debt consolidation loans. We’ll explain why you might want one, explore the benefits and risks they can bring, and share some tips on how you can qualify for one.
A debt consolidation loan is a financial product that lets you combine all your existing debts into one loan. So, if you have debt in various places, such as credit cards and loans, you can roll them all into one monthly payment rather than juggling multiple bills.
Merging all your outstanding debts into one loan can make managing your debt so much easier. What’s more, you might even be able to secure a lower interest rate, although this will be spread over a much longer period of time.
Debt consolidation loans can be either secured or unsecured. If you pick a secured one, it means your loan will require some form of collateral – most commonly your home. So, it’s important to note that your home could be at risk if you can’t keep up your repayments on a secured debt consolidation loan.
Getting a personal loan for debt consolidation could be a great option in the right circumstances. That said, they aren’t the ideal solution for everyone. Before you decide whether this is the best plan for you, let’s take a look at the pros and potential risks .
Arguably the biggest advantage of a debt consolidation loan is the simplification it offers. If you have debts with a number of creditors, it can quickly become tricky to keep track of all your payment schedules. Managing just one payment is far easier, letting you better keep an eye on your finances – and maybe even reducing stress. Additionally, it’s likely your single payment will be lower than what all your existing outgoings add up to right now, leaving you with a more affordable monthly outgoing, although you will be likely paying over a longer period of time.
But it’s not just about simplifying your outgoings. Loans for debt consolidation can also help save you money too. If you can secure a loan with a lower interest rate than your existing debts, you can save a decent amount of money over the course of your loan. However, paying over a longer period could mean more interest.
If you can keep up with your payments, you could give your credit score a boost too. That means you’ll unlock better deals (and even lower interest rates) should you need to borrow in the future.
However, debt consolidation loans do come with a few potential risks. For starters, the new loan you take on will probably have a longer repayment term than the remaining terms on your current debts. This means you’ll be making your repayments for longer. What’s more, while you may be able to use this longer term to secure a smaller monthly payment than your current combined debts, that could mean you end up paying more interest over the course of your loan.
Also, if you opt for a secured loan, there’s always the risk that you could lose your home if you fall behind on your repayments. Of course, this isn’t a problem if you go for an unsecured debt consolidation loan.
Finally, it’s worth keeping in mind that debt consolidation loans only really work if you don’t take out new debt. If you borrow again during the course of your new loan, you could end up in the same position you started, with multiple outstanding debts – and multiple repayments. So consider cancelling any cards that you have paid off with the loan so you are not tempted to credit a debt spiral.
When it comes to applying for debt consolidation loans, UK residents have a number of available options. However, most follow the same simple steps:
Before you apply for anything, your first step should be to get a handle on your current debt picture. Make a simple list of all your debts, including any credit card balances, outstanding loan amounts, and any other personal debts. With this information, you’ll be able to quickly tot up the total outstanding debt you’ll need to cover with your consolidation loan.
Once you have that information together, it’s time to do some research. Spend a little time searching for different loan options. Look at things like interest rates, monthly repayments, loan terms, and whether it’s secured or unsecured.
At this point, it’s worth checking your credit score before you go ahead and apply for anything. Your credit score will play a pretty big role in getting a debt consolidation loan. It could mean the difference between acceptance and rejection and can even affect the loan terms a lender will offer you.
Once you've found a loan you’re happy with, it's time to apply. You’ll need to provide a selection of personal and financial details, including your income and information on your existing debts. You might also need to send off supporting documents to verify this information.
After you’ve received approval, the process of paying off your existing debts can begin. Depending on your loan terms, your lender could either send payments directly to your creditors or deposit the funds in your bank account, leaving you to pay off the debts yourself.
Now that your other debts are gone, your only focus is on repaying your new debt consolidation loan. Make sure to meet your monthly payments on time to avoid any late fees or negative impact on your credit score. Cancelling your credit cards may also be beneficial, as you will avoid running up more debt.
Getting the most out of your debt consolidation loan isn’t just a case of picking the right product. It’s just as crucial that you research loan providers too. With that in mind, here are our top tips to help you make the best choice.
Evaluate Lender Reputation
Do your due diligence on potential lenders. To get a read on their reputation, check out customer reviews and testimonials. You’re more likely to get a positive experience with lenders that receive good customer satisfaction records.
Compare Interest Rates and Fees
Don’t assume that all lenders are equal! Interest rates and fees can vary, so spend a little time searching the market for the lowest rates. It goes without saying you can save good money with a lower interest rate, but keep an eye out for potential hidden costs that could offset those savings.
Assess Customer Service
No matter how good a financial product is, good customer service is just as important. There’s nothing worse than feeling like you’re getting nowhere during a call or email exchange with a service provider, and it’s especially frustrating when it concerns financial matters. Try to choose a lender with a reputation for great customer service performance. If you run into a problem during your application or you need help later down the line, you’ll be thankful you did.
Having bad credit won’t automatically disqualify you from getting a debt consolidation loan – but it will make it more challenging. However, it can make the process more challenging. If you’ve had problems with missed payments, defaults, CCJs, or previous insolvency, the chances are you’ve got a less-than-perfect credit rating. If that’s the case, you’ll probably discover that your loan options are limited.
That’s not to say you can’t get debt consolidation loans for bad credit. However, keep in mind that any products you do qualify for are likely to be on less favourable terms – you might have to deal with higher interest rates.
If you have a poor credit score, you might still be able to secure lower interest rates by going for a secured bad credit debt consolidation loan. But as we mentioned earlier, this comes with its own set of risks.
In the UK, eligibility criteria for debt consolidation loans can vary between lenders. That said, most follow some fairly common requirements, including:
Age and Residency: You’ll need to be at least 18 years old and a UK resident to apply for a debt consolidation loan.
Income and Employment: Lenders typically ask for proof of a stable income and employment. This proves to them that you have the means to repay the loan.
Credit Score: Some lenders may accept lower credit scores, but a higher score will increase your chances of approval - and more favourable terms.
Yes, you can use credit brokers or direct lenders to consolidate debt. In fact, working directly with a lender can offer several advantages, like a faster application process, the chance of a more tailored service by communicating your needs with the lender, and potentially lower fees and more competitive interest rates.
While you can use credit cards to consolidate debts, it doesn’t normally work out as a more cost-effective solution. Debt consolidation loans tend to have better interest rates than credit cards. And with fixed repayment schedules (as opposed to open-ended credit card borrowing), you can manage your finances and prepare for the future more easily.
Depending on the product you choose, Creditspring loans range from £400 to £2,400. Once you’re approved, Creditspring doesn’t impose any restrictions on what you use the money for, so you’re free to use your full loan to consolidate other debt.
A debt consolidation loan can affect your credit score in both positive and negative ways.
If you use your loan to pay off your existing debts and you make your payments on time, it can have a great impact on improving your credit score. However, in the short term, you might experience a dip in your score when you apply for a new loan. And remember, your score could be negatively affected if you miss payments later down the line.
If you’re looking to take back control of your debt, reduce your monthly outgoings, and improve your credit score, then a debt consolidation loan could be a great way to go. They’re a smart and effective way to manage multiple debts, simplify your finances, and potentially save money. Whatever debt you’re struggling with, whether it’s credit card balances, personal loans, or other forms of unsecured debt, consolidating them into one manageable loan can make a massive difference.
Before you apply for a debt consolidation loan, it’s important to take the time to fully understand the product and understand both the pros and risks of taking the product. Then, when you’re ready to apply, spend time researching products and lenders to give yourself the very best chance of finding the perfect product for you.
As always, we recommend Money Helper if you’re looking for extra help.
Why not check whether you’re eligible for a Creditspring loan? Just fill in your details here. It’ll take just 60 seconds and won’t harm your credit rating.
