Debt consolidation explained
Debt consolidation explained
Many of us get into debt at some point in our lives, and when we do we often owe money to several different lenders, from credit and store card companies to banks and building societies.
Having debts spread out like this can be confusing when you're trying to keep track of how much you owe, and to keep on top of repayments for each one.
That's why more and more people are taking out consolidation loans. Rather than trying to pay off the minimum amount for each debt, a debt consolidation loan could reduce your debt to one manageable monthly payment.
Debt consolidation loans are not for everybody - it really depends on your individual circumstances. But they can be a quick and easy way of simplifying your finances and even reducing your monthly repayments. Here's what you need to know.
What is a debt consolidation loan?
A debt consolidation loan pays off your existing debts, and transfers all the money you owe into one loan with one monthly repayment.
Of course, you still have to pay back all the money you owe, but a debt consolidation loan can make it simpler and less stressful. Nearly 13 million people in the UK have taken one out.
What are the benefits of a debt consolidation loan?
Most importantly, a debt consolidation loan makes your finances far easier to control. By combining your existing debts, it makes repayments easier to manage, as well as lowering your monthly repayments.
With only one monthly payment, there is far less risk of missing payments - an oversight that can affect your credit score, or lead to fines for late payments.
A debt consolidation loan can also mean lower monthly outgoings. Generally, loans charge a lower rate of interest than credit cards and store cards. You can also spread repayments over a longer period, reducing your monthly payments. By borrowing over a longer period overall interest can increase.
Secured and unsecured loans
There are two types of loans that can be used to consolidate debt. Secured loans are usually secured against your home. Personal loans are unsecured.
Lenders take more risk offering unsecured loans, so not everyone can get them, and they also tend to charge a higher interest rate than secured loans.
What are the disadvantages of a debt consolidation loan?
If you're not careful, one of the biggest advantages of a debt consolidation loan is also its biggest disadvantage. That is, it immediately clears your credit cards of debt.
And that's a problem because it means you can start spending on them again. If you do, you could end up right back where you started from, except this time with a consolidation loan on top. The easiest way to avoid this situation is to use the loan to clear the debt on your cards, then cut them up and throw them away.
Also, a debt consolidation loan might not be for you if you think you can clear your debts quickly. Once you take out the loan, you have to stick to the repayment timetable, as - remember, your home is at risk.
What can FIRSTPLUS do for you?
FIRSTPLUS offers Homeowner Loans that let you take control of your finances, reduce your monthly outgoings, and get on with your life. FIRSTPLUS Homeowner Loans are flexible - you can spread repayments over anything from five to 25 years - and the repayments could be a lot less than you might think.
Compare the interest on a Homeowner Loan - typical 7.9% APR variable - with the interest on a store card - typically 29.9% - and you can see just how cost effective FIRSTPLUS can be.
And a homeowner loan is quick and easy to arrange. A dedicated Account manager will guide you through the process, and there are no up-front application fees, house valuation costs or legal fees. In fact, a FIRSTPLUS Homeowner loan can pay out within days*, which means you can sort out your money, and be free to get on with your life, sooner than you think.
*this does not apply to loans regulated by the CCA.
