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:

Credit card debt
Many credit cards charge high APRs making them an expensive way to borrow long-term
Personal loan debt
Unsecured loans are often taken out to fund a car purchase, home improvements or a holiday
Most banks charge high interest rates on overdrafts which, over time, can lead to a big debt
Store card
While some store cards offer up-front discounts on spending they often have high APRs and fees

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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

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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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