Is debt consolidation right for me?
Debt consolidation is a way to manage your existing debt commitments, by taking out further credit to cover your debts. You’ll then repay the debt consolidation loan instead of your previous debts. This can make it easier to stay in control of your debt repayments as you won’t have lots of different repayments on different days.
But debt consolidation isn’t right for everyone looking to manage their debts. That’s because it can mean extra fees to pay and, depending on your circumstances, it can make your situation worse.
It’s important that if you’re considering debt consolidation that you’re fully aware of any potential drawbacks or negative effects it can have on you. Whether these effects will apply to you or not will depend on your individual situation, so read on to understand what they are.
By understanding all the possible effects, you’ll be able to assess how debt consolidation will affect you and if the positives outweigh any negatives.
What to consider with debt consolidation
One potential disadvantage of debt consolidation is that you could end up paying back more than your original contractual agreements. This is because if you’re making more affordable and smaller monthly payments, it will take you longer to pay back what you owe.
As you’ll still be paying interest over this longer period, you could also end up repaying more in total. This differs from debt solutions like an Individual Voluntary Arrangement (IVA) where creditors legally have to freeze your interest and charges.
Even if the debt consolidation loan will lower your interest rates, you could still up with more interest to pay in total. This is because you could be repaying what you owe over a longer period.
If you take out a secured debt consolidation loan, it’s important to be as sure as you possibly can that you’ll be able to keep up with the repayments. If you don’t, your property could be at risk of repossession. Think carefully before you take out any form of secured credit as you could lose your property if you don’t pay.
Still confused about the finer details of debt consolidation? We’ll take you through some of the most commonly asked questions in our ‘Debt consolidation FAQs’ guide.Continue to the next section Debt consolidation FAQs