Given the current economic climate, an ever increasing number of people or negatively impacted by mounting debt. The chances are that if this is the case, you will more than likely be familiar with the term – debt consolidation. Regularly advertised on the TV by lenders such as The Quick Cash Club, debt consolidation methods have been created with the goal of making debt more manageable and in theory, easier to clear. The size of the debt and who the money is owed to obviously plays a crucial role in clearing debt quickly but if you find yourself in a position where you are struggling with multiple payments to different credit agencies each month, then consolidating your debt could prove to be the ideal option.
What Exactly is Debt Consolidation?
There are a variety of debt consolidation methods including secured borrowing against an asset, such as your home, or through further unsecured borrowing, such as a personal loan (e.g. a guarantor loan).
Whilst consolidating all of your existing debt into one monthly repayment may seem like a good idea, as with all aspects of finance there are a few things that should be kept in mind:
- As with all loans, it’s crucial to ensure that you can afford the repayments. Does the proposed new arrangement enable you to comfortably meet your essential living costs (such as food, clothing and travel) and priority expenditure (such as rent/mortgage and council tax) each month? A poor credit history more often than not means poorer credit terms and a higher repayment.
- If you choose to take out another loan, you will actually be paying back a larger amount over an extended period of time. You must therefore make sure that you understand when your repayments will finish and that you are comfortable with the duration of the new loan.
Why Turn to a Guarantor Loan?
If you’ve been turned down elsewhere then unfortunately your credit history will reflect this. There is an alternative available though and this alternative is known as a guarantor loan. Guarantor loans are unsecured personal loans which ensure they are ideal for debt consolidation purposes
Guarantor loans available are generally available for between £1000 and £7500, although this varies from lender to lender.
By using a guarantor to obtain a loan like this, (the guarantor is put in place to guarantee repayments should you fail to do so) there is every chance that you will end up paying much less in fees and interest for your debt consolidation loan than may otherwise be the case.
Once agreed, your debt repayments will be simplified; meaning you will only be making one payment each month and if you go for a lender who offers a fixed APR, this payment would stay the same for the duration of the loan.
If you do decide to consolidate your debts, it’s important not to give in to temptation and start building up new debts again whilst you’re paying off your old ones.