If you have multiple debts that you are struggling to keep on top of, you can consolidate them into one single monthly payment at a more affordable rate. When it comes to debt consolidation, it is best to understand the ins and outs before making a final decision. We have put together this small blog post that will explain what debt consolidation is and how it can benefit you!
What is Debt Consolidation?
As said above, debt consolidation allows you to turn your various debts into one lower monthly repayment. Instead of making several payments to different lenders you can borrow money to pay back all of your debts, which leaves you owing money to just one lender.
Consolidating your debt normally involves taking out a secured loan to pay off any existing debt that you have.
What is a Secured Loan?
This is a type of loan that are more suitable for homeowners. The word ‘secured’ means that the loan is protected by whatever the homeowner offers up as collateral – normally their home. These loans are more favourable for homeowners as they can access lower interest rates, meaning that their monthly repayments are more affordable.
You don’t need to have a perfect credit rating to get approval for a secured loan since your home is offered up as collateral, meaning less risk to the lender. Secured Loans can be paid back typically over 3 to 30 years, allowing your repayments to be more flexible and affordable.
Keep in mind that if you fail to keep up with the repayments you can end up losing ownership of your home as it is used as security against the loan. However, the process for a lender to take ownership of your home is complicated and happens less frequently.
Why choose Debt Consolidation?
Debt consolidation lets you merge a great deal of debts into one single loan. By doing this, you won’t have to go through the trouble of several payments. It will allow you to make one payment each month instead of paying out to multiple lenders. This process will also allow you to pay back the loan in smaller amounts over a lengthy period.
Lower Interest Rate
Consolidating all your debts into one single payment will benefit you significantly as the interest rate will be lower. This will be a whole lot cheaper and your monthly repayments will be smaller, saving you a great deal of money.
Can improve Credit Rating
Having a poor credit rating will lessen your chances in applying for a mortgage or bank loan, which is why debt consolidation is a good step to take. Your credit rating will start to build and improve instead of damaging it by making numerous payments to clear your debts.
What to consider?
If you are considering going ahead with consolidating your debts, think about how it will affect you in the future. Work out how much you are planning to borrow. If it is a small amount you need to borrow, consider taking out a bigger loan. The rule to remember is the more you borrow for debt consolidation, the lower the interest rate will be.
What to do next!
Get in touch with Basik Money today on 0330 041 2299 to get free impartial advice from one of our qualified advisors.