If you have a decent credit score, but you are finding it difficult to meet your debt repayments, then consolidating your debt can often be an effective way of reducing your monthly outgoings. But is it always a good idea?
Debt Consolidation Loans (DCL) provide you with a lump sum of money that you then use specifically to pay off individual debts, like loans and credit cards. You then only have to pay one repayment and since the interest is only being charged once, you can save money. Sometimes this type of loan can also come with a longer payment term and a lower interest rate.
It can be straightforward to decide on whether a DCL is worth it.
- Consider the debts you wish to consolidate and get up to date balances or settlement figures for each one.
- Take the balances and settlement figures and add them together to see how much your DCL would need to be.
- Calculate how much each debt is costing you a month and add them together to find a monthly amount.
- Contact your chosen DCL lender (this could be done through a comparison website) and get a quote from them, bearing in mind what the interest rate is.
- Compare how much you are paying now with how much the DCL will cost. If the DCL is significantly cheaper then you would save money on a monthly basis.
Bear in mind that you will likely pay more interest in the long run and it may take you longer to pay off your debt.
To find out more, take a look at our Debt Consolidation Loan page.