| If you are looking to lower your monthly expenditure | | | | * Choosing to consolidate debts with a high APR |
| and/or simplify your finances, a debt consolidation | | | | (Annual Percentage Rate), from credit/store cards |
| loan could be right for you - allowing you to tackle | | | | for example, could significantly lower the interest you |
| your debts at a rate that you can really afford. | | | | are paying on your debt - which means it won't grow |
| Debt consolidation - what is it and how does it work? | | | | so fast while you're paying it off. |
| Debt consolidation involves taking out a new loan big | | | | Cons |
| enough to repay all your outstanding unsecured | | | | * Please bear in mind that a debt consolidation loan |
| debts in one go, leaving you with just one debt. | | | | will not reduce your debts. You will owe the same |
| This basically means that instead of making multiple | | | | amount as you did before, although it should be |
| payments to multiple creditors each month, you | | | | easier to manage. |
| would make just one payment to one creditor per | | | | * If you arrange to make lower monthly payments, |
| month until all your debt (plus any interest it has | | | | your debt will take longer to repay - so you'll be in |
| accumulated) has been repaid. | | | | debt for longer. |
| Some people arrange to slow down the rate at | | | | * Arranging to spread your repayments out over a |
| which they are repaying their debt - lowering their | | | | longer period of time could lead to you paying more |
| monthly payments to a level they know they can | | | | interest than if you had repaid your debt in a shorter |
| comfortably afford. | | | | timeframe (unless the interest rate on your |
| Before you commit to a debt consolidation loan - or | | | | consolidation loan is significantly lower than the |
| any debt solution for that matter - it is important to | | | | interest rate on your original debts). |
| understand and consider the good and the bad points | | | | Important points to consider |
| of taking this approach. We will now take a look at | | | | Before you decide if debt consolidation is right for |
| some of the pros and cons of debt consolidation | | | | you, it is important to note that it wouldn't be |
| loans, to help you work out if one could be | | | | suitable for everyone. |
| appropriate for you. | | | | For example: |
| Pros | | | | * someone with erratic earnings (who's not confident |
| * If you arrange to spread your repayments out | | | | they'll be able to service their consolidation loan each |
| over a longer timeframe, you will pay less each | | | | month), or |
| month. | | | | * someone who cannot consolidate all their unsecured |
| * Debt consolidation could help you protect your | | | | debts, or |
| credit rating. Making one payment each month should | | | | * someone who doesn't think they'd be able to |
| make it easier for you to manage your overall | | | | repay the debt consolidation loan* |
| finances and make sure you have enough money set | | | | *may discover that an alternative debt solution would |
| to one side to cover your monthly payment. | | | | be more appropriate. |