How do debt consolidation loans work?
If you’re struggling with debt management, you may be wondering exactly what debt consolidation loans are, and just how they work.
Our useful guide provides all the information needed to make the decision which could turn your life around and help you sort out all your finances once and for all.
What is a debt consolidation loan?
Taking action when debts start to mount is the way to stay on top of the situation, and debt consolidation loans are ideal solutions. The principle of debt consolidation loans is easy to understand: basically, you take out one large loan to cover all repayments on existing overdrafts, loans, credit cards and debts. The way this can help is to consolidate all these debts under one umbrella and make it easier to manage cash flow and stay on track with finances.
How do these loans work?
When you make the decision to take out a debt consolidation loan, the first thing to do is shop around different providers as rates can vary tremendously. With just one monthly repayment, these loans are easy to manage, and the repayments are often far lower than you’d typically pay across all your outstanding debts.
There are a variety of debt consolidation loans on the market, including:
– Secured loans which are secured against the value of assets you own, such as your home
– Long payment period
– Upfront fees payable for arranging loans.
Before making any firm plans for debt consolidation, it’s a good idea to review all your existing debts and the total payments due in order to work out whether debt consolidation provides real value. Just because these type of loans offer long repayment terms at lower rates doesn’t always mean they work out cheaper over the entire loan period.
What happens when I am offered a debt repayment loan?
After your debt consolidation loan has been approved, the total amount will be credited to your bank account. This means you can use it to pay off existing loans and debts. You’ll benefit from the lower monthly repayments and can just have one lender to deal with.
It’s important to avoid taking on further loans, credit cards, store cards, or increased overdrafts until you’ve cleared your debt consolidation loan. This way, all your focus can go towards better financial management, so you avoid having to get into this situation again in the future.