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If you’ve got some credit card debt here and there and maybe a loan or two, you might be considering getting a debt consolidation loan.
What are debt consolidation loans?
Debt consolidation loans, quite simply, are loans that you take out to pay off all of your existing debts. That way, you only have one payment to worry about every month, rather than 6 or 7. It’s more manageable and, for many customers, saves them money.
What are the advantages of debt consolidation loans?
Lower interest rates
When you take out a debt consolidation loan, it’s likely that you’ll be offered an interest rate that is lower than the ones you have on your existing debt. However, it is complicated. If you’ve got 7 different debts with different interest rates, it’s going to take some maths to work out whether you’d be better off taking out a debt consolidation loan. (If you’re in this situation, it might be wise to seek financial advice – they’ll tell you whether you will save money by taking out a debt consolidation loan.)
Fixed interest rates
Many debt consolidation loans offer fixed interest rates. This makes sure that your monthly repayments are always the same, allowing you to factor them into your budget. With fixed interest rates, you know exactly how much you’re going to pay each month.
It puts a clear end-date on your debt
Debt consolidation loans are great for paying off debt sooner and making debt manageable, but they’re also great for another reason: the knowledge that you’re going to be debt-free by a fixed date. Provided you make all of the payments on time, debt consolidation loans make sure that you’re clear of all debt by the time you’ve finished paying them off.
Another advantage of unsecured consolidation loans is that you don’t put anything up as collateral. Although there will still be legal ramifications, fines and proceedings if you miss payments on your unsecured debt consolidation loan, you won’t be at risk of losing your house or car.
What are the disadvantages?
It could cost you more, in the long run
Like we said before, sometimes debt consolidation loans can end up costing you more. That’s why it’s important to get debt advice before you take out a loan. (The Money Advice Service offer free debt advice – they’re well worth a call.)
It doesn’t get to the heart of the problem
OK, this one is quite important. It’s easy to think of debt consolidation loans as the quick, easy solution to all your debt worries. And, for many people, it is. However, debt consolidation loans don’t address the reasons why you got into debt in the first place. They don’t make sure that you develop healthier, more sustainable spending habits or more responsible financial behaviour – the things that are crucial to not getting into debt again.
If you’re considering a debt consolidation loan, it’s important to consider it as part of your journey towards a debt-free life. While the loan will help you pay off your debts, it’s important to work on the behaviours that led to debt in the first place – here’s some advice on getting started.
At Bamboo, we offer loans between £1,000 and £8,000. If you’re considering borrowing money to consolidate your debt, why not see how much you could borrow? If you’re approved, you could be on your way to repairing your credit score within 24 hours. Representative APR 49.7%. A guarantor may be required.
- Author Jack Barclay
- Posted 2 February 2017