I’m keeping track of several credit card debts – should I look into debt consolidation?
If you are keeping track of several unsecured debts – credit card debts, for example – and would like the chance to simplify your finances and/or reduce your monthly expenditure, debt consolidation may be appropriate for you.
Debt consolidation involves taking out a new loan and using it to repay all your existing unsecured debts (such as your credit card debts) at once, leaving you with just one debt to repay.
So, rather than making several payments to several credit card providers each month, you would start making just one monthly payment to one loan provider until your debt – plus any interest – has been cleared.
Would debt consolidation be appropriate for me?
Debt consolidation could be appropriate for you if you are keeping track of multiple unsecured debts and would like to make your finances easier to manage and/or you would like to reduce the amount of money you are spending each month.
Please bear in mind, though, that a debt consolidation loan would not be suitable for everyone – for example, it might not be appropriate for:
• Someone who isn’t sure they’d be able to repay the consolidation loan in full, or
• Someone with erratic earnings (who isn’t sure they will be able to service their debt consolidation loan each month),
or
• Someone who cannot consolidate all of their unsecured debts,
or
• Someone who’s really struggling to keep up with their debts.
Like any other debt solution, debt consolidation has its pros and cons. Here’s a brief look at a few of these, to help you figure out if a debt consolidation loan could be right for you.
Pros of debt consolidation
1. By arranging to spread your loan repayments out over a longer period of time, you could reduce the monthly cost of servicing your debt.
2. Credit card debts can often come with higher interest rates than other forms of credit, so you may be able to save money in interest: your consolidation loan may come with a lower APR (Annual Percentage Rate) than your original credit card debts.
Cons of debt consolidation
1. Arranging to make smaller monthly payments can mean you will be in debt for longer.
2. If you arrange to spread your repayments out over a longer period of time (repaying the loan more slowly), you may end up paying more interest than if you had cleared the debt sooner.