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Simon Nicholson

Written by Simon Nicholson on October 14, 2019

Updated October 18, 2019

Secured Debt Consolidation Loans

How To Consolidate Your Debts Using A Debt Consolidation Loan?

Having several different debts with different lenders can become confusing. Knowing what needs to be paid and when can become stressful, and there is an increased risk that a payment could be overlooked.

Many people turn to debt consolidation to solve this problem, as it can provide a good option for managing all your debts in one place. If you are wondering if debt consolidation could help you, or how to consolidate your debts with one loan, then read on for our expert guide and top tips.

What Is A Debt Consolidation Loan?

Debt consolidation is when you pay off separate existing debts into just one large loan known as a debt consolidation loan. They are a specialist type of loan that are designed specifically for this reason.

A debt consolidation loan can be used to pay off a range of different debts, including existing loans, credit cards and finance agreements. Using a debt consolidation loan does not get rid of your existing debts or mean that they have been paid off. Instead, they are moved to a single, manageable loan from just one lender, to make paying them off easier.

This process allows borrowers to streamline their debts into just one place and leaves just one monthly payment instead of multiple. A debt consolidation loan will reduce the number of payments you need to make each month but will not necessarily reduce the cost of these payments.

In some cases, debt consolidation can reduce the interest rate you are paying and in turn, will reduce the repayments. When you have multiple different debts and payments to make, it can be easy to lose track of when they will all be paid off and when you will be debt-free. With a debt consolidation loan, you will have one date to keep in mind where you know all your debts will be cleared.

Debt consolidation loans will not work if you continue to increase your debt by using a credit card or other forms of borrowing. Some debt consolidation lenders will require you to completely close any credit card accounts when you take out the loan to avoid getting into further debt.

How To Consolidate Your Debts Using A Debt Consolidation Loan?

In order to successfully consolidate your debts, you first need to find the best loan option for your financial situation. One of the most important aspects to consider is the size of the loan you need in order to consolidate all your debts. If you are looking to take out a secured loan then a broker can help with this.

You can work this out by calculating the sum of all your current debts, including all credit cards, loans or other debts. It is also worth checking if there are any additional fees you will be required to pay, such as early repayment charges.

Once you know the size of the debt consolidation loan you will need, you can begin shopping around for the best deal. Be sure to take interest rates and charges into account, as well as the duration of the loan and size of the monthly repayments. It can be worth seeking the help of a loan broker or financial advisor as they can often find the best deals for debt consolidation loans. You may find this secured loan repayment calculator helpful in calculating the monthly costs of the loan.

After choosing a loan and when your application is approved, the funds will be released to you. You can then use these funds to pay off all your existing debts with each individual lender. After everything has been paid off, you should be left with just your debt consolidation loan to pay off each month, leaving all your debts in one place.

Debt consolidation loans can have a positive impact on your credit score, as they will make you less likely to miss any repayments. Having just one payment to make every month will be much easier to keep track off than multiple and in turn, can increase your credit rating.

Why Choose A Debt Consolidation Loan?

There are a number of reasons why you might consider a debt consolidation loan to get your finances in order. Some of the main advantages include:

  • Lower Repayments: When you are paying off several credit cards, loans and other debts, the monthly repayments will be adding up to quite a significant amount. Even if all you are covering is the minimum payments, it could be hundreds of pounds depending on your debts. With a debt consolidation loan, you will be left with one monthly payment which will often be less than the several other payments you had before.
  • Manageable Finances: Debt consolidation can help to make your finances simplified and more manageable as your monthly repayments will be combined into just one single payment. This can make it much easier to plan your spending and budget successfully. As well as this, you will only have one lender to deal with as opposed to a few.
  • Lower Interest Rates: Having several different debts often means having several different interest rates. Some may be higher than others, and some may increase over time depending on the types of debt you have. A debt consolidation loan will often have a lower interest rate than your current debts combined. This means that in the long run you will be paying back less and also will be paying back more of your debt with every payment made.
  • One Debt Free Date: Being in debt can be stressful and having multiple debts can make it unclear when you will be debt-free. Especially if you have ongoing debts such as credit cards or loans with no specific end date. Debt consolidation loanswill usually have a set term, and at the end of this term you will be completely debt-free. Knowing your debt-free date can help you to manage your finances and plan for the future.

Some debt consolidation loans will require some form of security, and this often means using your home as collateral. If this is the case, your home could be at risk of being repossessed if you do not keep up the repayments.

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