There are a number of debt solutions on the market in the UK and each one is tailored to suit a different set of circumstances
. Talking to a specialist debt advisor will help you to weigh up your options and decide on the best way to solve your debt problem.
A debt consolidation loan is one of the possible solutions that could free you from the burden of bad debt. Unlike the more severe solutions that could be open to you, whether an Individual Voluntary Arrangement or Bankruptcy, a consolidation loan doesn't write off any of your debt though. It reduces the monthly repayment amount and makes the debt easier to service but does this make the debt cheaper or more expensive?
Of course, there will be advantages and disadvantages to any debt solution option that's open to you. Talking to a debt advisor will help to make your options clearer though. A brief introduction to the advantages and potential disadvantages of debt consolidation was drawn up by Debtsolver but it's important to talk to an advisor about your personal financial circumstances.
Firstly, there is the reduced monthly payment. This is the main benefit of debt consolidation but do remember that you will probably be paying this reduced rate across a longer repayment period.
In order to take full advantage of the reduced rate of interest which is commonly associated with a debt consolidation loan, it will normally be necessary to secure your loan against an asset, like your home. Naturally, there is a risk to your home if you fail to maintain the repayments.
Your debt will be easier to manage because of the single monthly repayment too. A payment of a fixed amount on the same day each month makes balancing your budget much easier. Keeping up with the repayments will help to repair your damaged credit rating though.
As you'll be paying off your debt at a reduced rate but over a longer repayment term, you'll need to get the calculator out to see whether it'll be costing you more money in the long-term. You'll then have to decide if the increased manageability makes this worthwhile.