If you have multiple debts, a debt consolidation loan can make managing your debt a much simpler task.
However, as with any loan, your ability to get a debt consolidation loan will depend largely on your credit rating, as will the interest rate you are offered.
How can a debt consolidation loan help me?
A debt consolidation loan is a loan aimed at paying off multiple existing debts – effectively ‘consolidating’ several debts into one. This can make your debt much easier to keep track of (and budget for), as you’ll only have one debt repayment to deal with each month.
A debt consolidation loan can also enable you to reduce your monthly outgoings, by repaying the loan over a longer period of time than your original debts. This can make a big difference to your monthly finances, but you should be aware that this may also mean you’ll pay more overall, as you’ll also be paying interest for longer.
That said, you may still be able to save money overall if the interest rate on your new loan is lower than the rates on your old debts. Repay your debt consolidation loan over the same repayment period (as you would have repaid your original debts) and you will almost certainly save money – but if you take longer to repay the debt, there’s a chance that you’ll pay more.
So you’d need to decide if it’s worth paying more over the duration of the loan, if it means you can save money on a month-to-month basis.
Debt consolidation loans for bad credit
If you have a bad credit rating, you may have some difficulty finding a debt consolidation loan. After all, a consolidation loan is still a debt, and lenders will want to see that you’ll be able to meet your repayments.
However, that’s not to say that a bad credit rating will prevent you from getting a debt consolidation loan entirely. Even in the current climate, there are lenders who will lend to people with poor credit ratings. But keep in mind that the interest rate you are offered is likely to be higher than if you had a good credit rating, and you may not be able to borrow as much as some people might.
In other words, you’ll have to look very carefully at the interest rate you’re offered, if you are offered a debt consolidation loan. If you like, you can discuss it with a professional debt adviser, who can help you figure out whether it really makes sense to consolidate your debts.
Then, there’s the question of why you have a bad credit rating. If it’s because you’re having a hard time repaying your debts today, there’s a good chance that a debt consolidation loan isn’t the best way for you to address this – you may be better off considering a debt solution such as debt management or an IVA (Individual Voluntary Arrangement).
If you’re thinking about taking out a debt consolidation loan, get debt consolidation advice here.
