If you are keeping track of a number of debts and would like to make them easier to manage and/or lower your monthly expenditure, a debt consolidation loan could help.

How does debt consolidation work?

In simple terms, debt consolidation loans are designed to repay all your existing unsecured debts – effectively consolidating multiple unsecured debts into one convenient monthly payment.

Many people consolidating their debts are also looking to lower their monthly outgoings, which can be done by spreading out your monthly payments over a longer timeframe than your original debts. However, bear in mind that this means you’d be paying interest for longer – which means the amount you pay in the long run may be higher.

Nonetheless, it’s quite possible to slow down the rate at which your debt grows: if your debt consolidation loan’s interest rate is lower than the interest rates on your previous debts, your debt will grow more slowly.

Would a debt consolidation loan benefit me?

The answer to this question depends on your situation – how much debt you are carrying, and how well you are able to meet your current financial commitments. You should also think about whether your situation is likely to change in the foreseeable future – your income might drop, for example, or your expenditure might increase.

In general, a debt consolidation loan can be suitable for people who are able to repay their debts under the original terms, but would like to simplify their finances and/or make their debts easier to manage by lowering the amount they are required to spend each month.

If you aren’t able to meet your debt repayments as they stand today, a debt consolidation loan probably won’t be the right solution to your debts.

What about the other debt solutions?

As with any financial decision, it is important that you research what’s on offer and make sure you take the right approach to clearing your debts.

Debt consolidation – points to consider

A debt consolidation loan would not be suitable for you if you:

• Have erratic earnings and wouldn’t be able to commit to making regular repayments.
• Cannot afford to repay the debt consolidation loan in full.

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