Debt Consolidation
What is a debt consolidation loan?
A debt consolidation loan is a type of loan that’s used to combine all your existing debts into one pot. All you’ll need to do is apply for a loan for the amount you owe in existing debt and if approved, you can use the funds to pay off your other borrowing. You’ll then pay off the loan over time, usually in monthly repayments.
Not only could a debt consolidation loan make your debt easier to manage, it can also reduce the amount of interest you pay by having all your debt in one place at a lower interest rate.
Lexion Financial Services can help you with debt consolidation loans from across the market, from a range of providers.
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What can I use a debt consolidation loan for?
A debt consolidation loan can be used to pay off different types of debt, including:
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How do debt consolidation loans work?
A debt consolidation loan lets you move your existing debts to one loan so you only need to make one monthly repayment. Here’s how it works:
Work out what you owe
Look at your existing credit card, loan and overdraft debts. Calculate the total value of the loan you’ll need to cover these existing debts and borrow that amount
Pay off debt with the loan
Use the loan to pay off existing borrowing. Having just one loan reduces the amount of repayments you have to make each month by having your debt in one place
Pay back the loan
Once you’ve paid off your existing debts you’ll then pay back the consolidation loan within the set term. Having just one monthly repayment could make things easier to manage
Is a debt consolidation loan a good idea?
Once you’ve paid off your existing debts you’ll then pay back the consolidation loan within the set term. Having just one monthly repayment could make things easier to manage
Reduce your monthly repayments
This works particularly well if you have quite a few outstanding debts accuring interest
Missed payments have consquences
You will damage your credit score if you don’t make your repayments in full each month
Lower overall interest
Debt consolidation loans tend to have lower APRs than payday loans or some credit cards
Set-up fees can be pricey
Your exisiting creditors may charge you a fee for transferring the balance on your loans
Easier to keep track of your debt
Managing one payment a month is more straightforward than several at once
You may lose your home or car
If you can’t keep up with the repayments on a secured loan your home or vehicle could be repossessed.
Boost your credit score
It’s easier to make one repayment every month, and doing so can improve your score
Other options are available
For example, a 0% balance transfer credit card may suit someone with more modest debts
Can I get a debt consolidation loan with bad credit?
If you’ve struggled with debt in the past and have a low credit score you may not be offered the best loan deals. But there are specialist providers offering debt consolidation loans for bad credit. Your lender will decide which type of loan – and what interest rate – it can offer after checking your credit score.
If you have bad credit, providers may offer you a debt consolidation loan secured against your house, rather than an unsecured debt consolidation loan. But remember while this can seem like a good option, your home is at risk if you can’t keep up with your repayments.
The good news is if you keep up with repayments on your debt consolidation loan, and have no other negative credit factors, it should lead to an improvement in your credit score over time.
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