Consolidation Debt – What is it, and Can it Help your Financial Situation?

If you ever want to understand how stagnant wages and disproportionate earnings are impacting on debt levels in the UK, you need only look at the most recent statistics.

According to The Money Charity, the average adult in the UK has a cumulative debt of £30,597, which is currently 113.9% of average earnings nationwide. This seems to reaffirm the idea that some Brits are continuing to borrow far more than they can comfortably afford to repay, while also turning to lenders as a way of plugging gaps in their everyday finances.

This can never be considered as a good thing, as it simply builds larger, long-term debts that are difficult to repay. This is arguably why so many borrowers have taken out debt consolidation loans, in order to manage their liability more efficiently and simplify their monthly repayments.

But what is a debt consolidation loan, and is it the right option for your financial circumstances? Let’s take a look:

A Brief Guide to Debt Consolidation and its Benefits

Debt consolidation loans can be both secured (against an asset such as a house) and unsecured, depending on the underlying nature and value of your debt. It will also feature a rate of interest (whether fixed or variable) and operate in the same way as any other loan, with the total amount borrowed to be repaid within a predetermined period of time.

The purpose of these loans is slightly different, however, and they’ve certainly become more popular as consumer debt levels in the UK has increased. In simple terms, these are loans that enable you to borrow a lump sum of cash from a single lender, which is effectively used to repay your existing debts. You’ll then repay this in the form of a recurring monthly repayment, which is made to your new creditor on a fixed date.

Now, while the relevance of a debt consolidation loan will depend on your own, unique circumstances, there are universal advantages associated with this type of borrowing. Not only does it simply the management of your debt and enable you to bring it under control, for example, but in some case it may even reduce the amount that you pay each month.

This is because you may reduce the total amount of interest that is charged to your debt, depending on the terms of the deal agreed with your creditor. This could help you to settle your debt quicker, while ensuring that each payment goes further towards securing and strengthening your financial position.

In instances where you’ve struggled to repay multiple debts simultaneously, you may also find that the simplified nature of consolidation loan could help to improve your long-term credit score. After all, you may find it far easier to make a single, monthly repayment to your creditor, and over time this will demonstrate your ability to settle debt and successfully manage lines of credit in the future.

This is arguably one of the main benefits of debt consolidation loans in the current climate, as you can successfully repay debt while also building towards a brighter fiscal future.

How Debt Consolidation can Boost your Financial Circumstances

These benefits must always be measured against your own circumstances, of course, as debt consolidation loans will only work if you’ve crunched the numbers and determined that this will reduce your debt burden and make it easier to manage.

It’s also ideal if you’re able to apply for unsecured loans, as this means that you do not have to use your family home or another high value asset as security against the borrowing. This affords additional peace of mind, while enabling you to focus on making a single repayment and gradually reducing debt.

With these points in mind, there’s no doubt that debt consolidation loans have the potential to boost your financial circumstances in the current climate, particularly if you’re struggling to balance multiple loans and interest repayments on a monthly basis.

FG Editorial Team
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