What is debt consolidation?
It is sensible from time to time to take stock and review your finances. Some people do this on a regular basis, others at the start of a new year or when they have an important life event such as changing jobs.
Reviewing your finances is an opportunity to look at your debts, including credit cards, store cards, overdrafts and loans, and to check whether you could save yourself some money and make your life a little easier.
Our new blog series will cover some important things you might want to know about improving your finances by consolidating your existing debts.
What is a debt consolidation loan?
Debt consolidation rolls your existing borrowing into one simple loan. This means that instead of paying monthly repayments for each of your debts, you pay a single manageable monthly payment to one loan provider.
A debt consolidation loan can also reduce the amount of interest you are paying, saving you money every month.
Debt consolidation loans can either be unsecured or secured.
What is the difference between unsecured and secured debt consolidation loans?
A secured debt consolidation loan is secured against your home or other assets.
An unsecured debt consolidation loan is not secured against your home or other assets.
What is the difference between a personal loan and a debt consolidation loan?
In principle both of these products can be used for debt consolidation. Debt consolidation is a common use for a personal loan but not all personal loan providers allow you to use their loans to consolidate debt.
How can I get a debt consolidation loan?
1. Find out exactly how much you owe in total and how much it will cost you to pay off those existing debts.
2. If you think a debt consolidation loan is right for you, then you will want to have a look across a number of loan providers to see what your borrowing options are.
RateSetter offers unsecured personal loans that can be used for loan consolidation, this gives you the simplicity and control of having a single monthly payment that could save you money every month.
3. Once you’ve secured your loan, and paid off your existing borrowing, all you should need to do is to continue to make monthly payments on your new debt consolidation loan until your loan is repaid in full.
What types of borrowing can you combine with a debt consolidation loan?
A debt consolidation loan can be used to combine higher interest rate credit into one place. You can usually consolidate the following types of borrowing:
- Personal loans
- Credit cards
- Store cards
What should I consider before taking out a debt consolidation loan?
Before borrowing any money, it’s important to make sure you choose the right product for your needs.
Can I afford the new repayments? – ask yourself whether you can afford to make the repayments now and in the future?
Could I save money? – is the cost of a debt consolidation loan lower than your existing borrowing?
What fees will I be charged for repaying my existing borrowing? – does the amount you save by consolidating your debt offset any fees you will be charged by your existing lender(s) when you pay off the debt early?
If you’ve made the decision to take out a debt consolidation loan then RateSetter may be able to help:
New to RateSetter? A RateSetter unsecured personal loan can be used to streamline your existing borrowing into one affordable monthly payment. It could also save you money every month in interest. Find out more.
Already have a RateSetter loan? You may be eligible to consolidate your existing borrowing with your current RateSetter loan or take out a new loan. Sign in to your account to get a personalised rate.
If you’re worried about debt, you might find it useful to visit The Money Advice Service, which has further information about debt management and offers free debt advice.