What is a debt consolidation loan?
Debt consolidation is where you pay off all your existing debts by transferring them into one single loan. How does it work? By taking out a debt consolidation loan, you could make your monthly repayments more affordable to help you manage your finances better. It could also help to improve your credit rating.
With 118 118 Money, you could consolidate your current debts into one loan from £1,000 to £5,000 to be repaid in 1 to 2 years, with fixed monthly instalments.
Why should I take out a debt consolidation loan?
If you have multiple debts and find it difficult to keep a record of them each month, then taking out a debt consolidation loan might be the right solution for you.
Rather than having to set yourself reminders to pay and work out how much you need to pay off each debt each month, a debt consolidation loan could give you one stress-free and affordable fixed monthly repayment amount, making your debt situation much more manageable.
You’ll still have to pay back the full loan amount, with interest; however you could end up paying a lower fixed amount each month by spreading the cost over a longer period. Borrowing over a longer term may increase overall interest charges, so if you are consolidating and extending the term of your borrowing, consider this.
Are there any other benefits?
In addition to lowering your monthly repayments, a debt consolidation loan could also:
- Help to improve your credit rating – If you can fully demonstrate that you can repay the fixed monthly repayments of your loan and not build up any further credit, it will be seen as a positive impact on your credit rating which could help you gain further credit in the future.
- Reduce the amount of interest you pay – if your multiple existing debts have high APRs, which means you’re paying off a high amount of interest, you could reduce that amount taking out a debt consolidation loan. The debt consolidation loan will also accrue interest but this will generally be a lower amount than your existing debts.
Are there any risks of a debt consolidation loan?
By taking out a loan to consolidate your existing debts, you could end up being in debt for a longer period of time depending on your circumstances. For example, if your existing debts need to be repaid within six months, you could end up being in debt for longer with a loan up to 2 years; however the monthly repayments could be more manageable and affordable for you.
Before applying for any form of credit, it’s vitally important to do your research and weigh up all of your options. If you need to work out how much you pay out each month, take a look at our handy budget planner.
You can also work out how much you could afford to borrow with our free to use loans calculator.
What should I consider when taking out a debt consolidation loan?
There are several key things to consider before deciding to take out a debt consolidation loan:
- What interest rate (APR) will you be paying if you consolidate your loan?If it is higher than you’re paying currently, then the total cost of your loan will increase so you won’t benefit in the long term. It should also be remembered that repaying borrowing over a longer term may increase overall interest charges.
- What will your new monthly repayment be?If your new monthly loan repayment is more than you are currently paying, will you be able to afford it? Especially if you are already struggling to repay your debts.
- How long will it take to repay your consolidation loan?It may be useful to choose a loan term that makes your monthly repayments more manageable. But remember, the longer you take to pay off your loan, the more interest you will pay. So make sure you know what the total cost of your loan will be and not just how much you’re expected to pay back each month.
- Don’t be tempted to keep on spending.There is little point in consolidating your debts if you continue to use other credit before your loan is paid off. So cut up your credit cards, cancel your overdraft and resist any tempting hire purchase offers.
Debt consolidation loans from 118 118 Money
In the right circumstances, a debt consolidation loan can help you take back control of your finances.
A 118 118 Money loan offers competitive rates of interest for people with a less than perfect credit score – much lower rates than you’ll receive from short-term or doorstep lenders. What’s more, we guarantee to keep your offer valid for up to 5 days so you can find time to shop around for the best deal for you.
We don’t charge sneaky, hidden fees or upfront payments either. We’ll only lend what you can afford so you know your monthly payments will be more manageable. And the other good news is that your repayments can be arranged the day after payday.
Try Our QuickCheck
Before applying for a loan with 118 118 Money, try our QuickCheck to give you an indication of how likely you are to be accepted. What’s more, our QuickCheck won’t affect your credit score so you can rest assured that if you’re deemed likely to be accepted, your credit score won’t be at risk from a rejection.