Consolidating debts have more money pay need
One of the criticisms of some debt consolidation loans is that consumers can spend more to pay down their debt than they would by just repaying their creditors directly.
Of course, the benefits of a debt consolidation loan are three-fold: First, you'll be making just one payment every month instead of several to a large number of creditors. Secondly, many debt consolidation providers negotiate with your creditors to lower the amount of money you owe.
Consolidating all your debts into one loan might appear to make life easier but there might be much better ways of dealing with debts.
Find out more about how debt consolidation loans work, then get free debt advice before you make a decision.
When you take out a debt consolidation loan, you combine all or some of your debt into one loan.
Then, instead of making several payments to multiple creditors each month, you make one payment every month until you pay your loan.
The downside of debt consolidation Like most ways to reduce your debt, debt consolidation loans do come with some negatives.
However, there are some potential pitfalls to taking out such loans.If you’ve got lots of different debts and you’re struggling to keep up with repayments, you can merge them together into one loan to lower your monthly payments.You borrow enough money to pay off all your current debts and owe money to just one lender.For example, what if interest rates go up, or you fall ill or lose your job?
If you can’t stop spending on credit cards, for example because you’re using them to pay household bills, this is a sign of problem debt.Different lenders will offer different interest rates and terms with their loans.You want to shop until you find a debt consolidation loan that provides the fees and interest rates with which you are comfortable.You should get free debt advice before you consider taking out a secured debt consolidation loan, as they’ll not be right for everyone and you could just be storing up trouble or putting off the inevitable.