Consolidation Loans Explained

When your debts are spiralling and your monthly outgoings are becoming unmanageable, one solution that you might want to explore is a debt consolidation loan.

Many people are unfamiliar with this concept, but it actually turns on a very simple principle: you take out one large loan in order to pay off multiple smaller debts.

For most people, their first question is how exactly taking out a further loan can help them, but if you think about it the answer is rather obvious: it simplifies your finances and can also minimise your monthly outgoings.

How Does It Work

As stated above, debt consolidation turns on a simple mechanism: existing debts are consolidated into one single, lump sum. This is done by borrowing a large sum of capital, which can be used to clear outstanding bills in one fell swoop. As a result, you’re left with only one loan, one creditor, and one monthly repayment.

Could a Debt Consolidation Loan Be of Use to You?

Consolidation Loans Explained

A debt consolidation loan is usually offered by secured lenders like Nemo, which can sound like a godsend, but it’s important to really think your decision through before approaching any lenders.

A Nemo loan is secured against your home, so you must ensure you can afford the repayments, as you could risk losing your home. There are lots of other options to consider, and it may be that one of these would work better for you.

Start by assessing the extent of your money troubles. A debt consolidation loan will not make you free from debt; it will simply transfer your outstanding bill to a different provider with one monthly repayment.

This means that if your problems have snowballed to such an extent that recovery from your debts is impossible, you may well be better considering bankruptcy or an Individual Voluntary Arrangement, as opposed to prolonging the inevitable.

Remember too, that even if you’re not looking for a more permanent solution, there are still lots of other options to explore such as an unsecured loan, which is not secured against your home. You’ll find it more than worthwhile to research each of them individually.

The Benefits of Debt Consolidation

If you do your research and still feel that a debt consolidation loan would be the best option for you, there are a number of benefits attached to the principle. It can be an appropriate option for some people, and it may well be that you’re one of them.

The main advantages are:

  • A reduction in the number of creditors you need to deal with.
  • A reduction in your monthly outgoings thanks to smaller monthly repayments.
  • Less damage to your credit rating than an IVA or bankruptcy would cause.

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