As many how have tried (or are currently trying) to pay off debt will know, it can be very difficult to pay down accumulated debts. One of the major causes of struggle or failure to pay off debts is linked to having multiple debts at the same time, all needing to be paid off. This is when a debt consolidation loan could help.
It is quite common to have debts across multiple streams – you may have more than one credit card, loans requiring repayment, and other debts, all accruing interest. If you have two or more of these debts at the same time, it can be stressful to be able to make separate repayments to all of them at the same time. In some cases, you may find yourself failing to make repayments for one or more of your debts or loans, in order to be able to make payments on another. If this happens, you risk incurring extra fees or late charges, and in worst case getting a bad credit rating.
In such cases, a debt consolidation loan could help. A debt consolidation loan, put simply, means that you combine multiple debts together in one loan. This means not only do you only have to worry about making a single repayment at a time, you may also have a lower interest rate on your debt overall, particularly if some or all of your existing debt has high interest rates.
There are different types of debt consolidation loans, but in general it refers to any time of loan which allows you to pull multiple debts together under one place, and therefore one regular repayment. One common type of debt consolidation loan is a home equity loan. This is a loan which uses the equity in your home as collateral against the loan. This can usually only be used when you have a reasonably high degree of equity in your home: that is, when you have already paid of a good proportion of your home loan. If you are eligible for a home equity loan, this can be a good way to consolidate your debt as it usually has lower interest rates compared to other types of loans.
Another way to consolidate your debt is by pulling it all together under one credit card. Again, the idea here is that all your debt will be in one place rather than across multiple cards, and so you will only have to worry about one minimum repayment each month. You should try to find the credit card with the lowest interest rate possible – shopping around for this can be beneficial as there can be a wide range of in interest rates being offered on different cards at any given time.
You may also be able to use a personal bank loan to consolidate your debt. Usually this is as easy as speaking to your bank. Often you can even fill out an online application for immediate approval, depending on your personal circumstances and the size of the loan you need! Some banks also offer specific debt consolidation loans, designed especially to pull your debts together in one place. As with other types of debt consolidation you should try to find one with a lower interest rate than you are currently paying on your debt. When calculating your best options, be sure to consider how much you will have to pay in overall interest across the entire life of the loan, especially for loans which have a lower repayments and a longer repayment period.
In summary: a debt consolidation loan could be a great solution to bring together your existing debt, limit your repayments, and could even lower the interest you are paying on your debt. There are different options to achieve this, including home equity loans, credit card consolidation, personal loans, and specific debt consolidation loans, so make sure to investigate these and find the best one for you!