Debt Consolidation Loan

This involves transferring debts with higher interest rates into one loan with a lower interest rate.

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This Guide Includes

1. What is a Debt Consolidation Loan?

2. What’s an unsecured Debt Consolidation Loan?

3. Debt Consolidation Loan - Things to consider

4. Criteria for a Debt Consolidation Loan

5. Advantages of a Debt Consolidation Loan

5. Disadvantages of a Debt Consolidation Loan


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What is a Debt Consolidation Loan?

This involves transferring debts with higher interest rates into one loan with a lower interest rate. To make this a worthwhile option the interest rate of your consolidation loan should be at a lower rate than your current credit agreements. This could enable you to make a saving on monthly repayments.

Note: Refresh Debt Advice is not a credit broker or lender. We do not provide credit services.

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Debt consolidation loans aren’t right for everyone. It’s important to check all the options available to be sure you’re making the right choice. While consolidating debt often sounds like a promising solution, it could make your situation worse. It may not be an option at all if you have a poor credit history.

Whilst monthly repayments on a consolidation loan may be lower than the total of all the monthly repayments on your other loans this may only be because the loans are repayable over a much longer period of time. Again, the overall cost of the loan over the entire period can be quite high.

What’s an unsecured Debt Consolidation Loan?

Unsecured means the loan isn’t linked to your home. Some consolidation loans require you to secure the loan against your home. However, if you fall behind with payments and can’t afford to repay what you owe, you’re at risk of your home being repossessed.

Debt Consolidation Loan - Things to consider

If you have lots of debt, or if you’ve missed payments on your debts, this will have affected your ability to borrow more money. You might find that the only way you can borrow more money is at a higher interest rate. This means that you could end up paying more money back over the lifetime (or term) of the loan.

Debt consolidation loans may be a good option if you have a lot of expensive borrowing on things like credit cards which carry high monthly repayments and high interest rates.

We recommend speaking to an expert debt adviser before taking out a consolidation loan.

Criteria for a Debt Consolidation Loan

Have a number of debts you with to combine into a single loan with the goal of making a saving on your monthly repayments.

Debt consolidation and debt management are two different things. It’s easy to get confused by the terminology used when trying to sort out your debts.

  • Debt consolidation involves taking out new credit to pay off your debts
  • Debt management is where you, or a debt management plan provider such as refresh, negotiate affordable payments with the companies you owe money to.

What are the advantages of a Debt Consolidation Loan

  • It could reduce the overall cost of borrowing.
  • It could lower your monthly repayment.
  • It will put all of your existing debts into one monthly payment for convenience.

What are the disadvantages of a Debt Consolidation Loan

  • The consolidation loan could carry a higher interest rate.
  • You might have to pay it back over a longer time period, making it more expensive to pay off.

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