If you're wondering ‘should I consolidate my debt', you're not the only one. It's a commonly asked question, and our guide is here to help you find your answer.
What is a debt consolidation loan?
A debt consolidation loan brings together a number of outstanding debts owed to different parties and combines them under one loan. Debt consolidation loans can be a wise choice if you’re not able to keep control of the money you owe.
If you’re wondering how to consolidate debt, there are two types of loan available to you. These are secured and unsecured. Secured loans are those that are guaranteed by a property or other asset that you already own, or part own. Most commonly, this would be your home, but it could also be a vehicle. If you opt for a loan secured against your property, it’s important to remember that if you don’t maintain your payment schedule, your asset could be used to cover any outstanding debts – though this is generally a last-resort option.
An unsecured loan isn’t secured against any asset but, because of this, it is often a more expensive way to borrow.
Here, we’ve put together a series of debt consolidation tips to help you decide whether a debt consolidation loan is right for you.
Who are debt consolidation loans for?
Debt consolidation loans are for people who want to take control of their personal finances and reduce their debt. If you’re rethinking how you budget and are looking towards becoming debt-free, a debt consolidation loan could be a good route for you.
It’s sensible to see the loan as a fresh start. However, this type of borrowing best suits those who are confident they can afford to keep up the repayments. It’s also important to double-check that the savings you make through taking out a consolidation loan aren’t undermined by other fees or charges.
What are the benefits of debt consolidation?
There are many advantages of debt consolidation but there are a few that stand out. Consolidating your debt may reduce the overall amount you end up paying over the long term. It may also be much easier to take care of one payment a month, rather than lots of different payments to many parties at different times.
With a debt consolidation loan, you still have to repay the money you owe. However, as well as reducing your monthly outgoings, you may be able to secure a lower interest rate or find you’re able to spread the cost of your borrowing over a longer period.
Things to consider when taking out a debt consolidation loan
If you’re considering taking out a debt consolidation loan there are some points to consider, particularly with regard to repayments. For people with extensive debt, be aware that debt consolidation may not be the best option. Debt consolidation loans may be a better option for those who can maintain regularly, monthly repayments.
If this isn’t possible for you, carefully consider your options to ensure you don’t end up paying back more overall, or your current debts wouldn’t be cleared by the loan.
Debt management or debt consolidation?
Although they sound similar, debt management and consolidation are two fundamentally different approaches when it comes to looking at clearing your debts.
Debt management involves speaking to the businesses that you owe money to and agreeing affordable payments, whereas debt consolidation involves taking out a new loan to pay off your existing debts.
Both options aim to reduce your monthly payments, but not everyone will be able to negotiate new terms with their lenders. For this reason, debt management plans are often provided by specialist companies – some of which may charge fees. If you’re uncertain which option is best for you, the Citizens Advice Bureau offers impartial help and advice.
How to apply for a debt consolidation loan
To apply for a debt consolidation loan, begin by telling us how much you’d like to borrow and over what period. Our loan calculator can help you get started on creating your debt consolidation plan, and show you the monthly repayments you could expect to pay if you’re successful in your application. The calculator also asks whether you’re looking for a secured loan (lending against your property, or remortgage) or an unsecured loan, and what rate you’d like.
With Norton, you can borrow anything from £3,000 to £500,000 over a period of one to 25 years. As a broker rather than a direct lender, we scour the market, searching through hundreds of unique lending plans, to find the perfect one to match your needs.
Once you’ve used the calculator, or if you already know what you’re looking for, you can begin your application with us here. We just need a few personal details to generate your free, no obligation quote.