Debt consolidation: is it right for me?

28 May 2009

If you are tired of dealing with multiple debts every month, then a debt consolidation loan could simplify your finances, and could even help you reduce your monthly outgoings.

However, debt consolidation loans are not right for everyone. Let`s have a look at the advantages and disadvantages of debt consolidation loans, to help you decide whether it`s the right debt solution for you.

How debt consolidation works

A debt consolidation loan is a new loan designed to pay off your existing debts. This means you`ll only have to make one debt repayment each month, instead of many, making your finances simpler to manage.

In a lot of cases, borrowers also choose to reduce their monthly outgoings when they take out a debt consolidation loan. You can do this by spreading out your repayments over a longer period than the original debts - but be aware that because you will also be paying interest for longer, you may pay more than if you had chosen a shorter repayment period.

For many people, though, the most important thing is that they will pay less each month.

And you could still pay less interest overall if you are consolidating high-interest debts such as credit cards. If you`re unsure about how much money you might save, a debt adviser will be able to help you.

Should I go for a debt consolidation loan?

This will depend on a number of factors. It`s important to remember that a debt consolidation loan is still a debt, so you must be absolutely sure you can keep up with your payments in the future.

If you`re being stretched to your limits by debt, then a debt consolidation loan may not make a big enough difference to be worthwhile - you may still find yourself struggling further down the line. In this case, you may want to consider a different debt solution.

Likewise, if your income is unstable - if you are self-employed or have a commission-based salary, for example - then you risk missing repayments, which will carry the same consequences as with any other debt.

However, if you just want to simplify your finances and/or reduce your outgoings, and you`re sure you can keep up with repayments, then a debt consolidation loan could be for you.

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