A great solution to high interest debt is a debt consolidation personal loan. You are able to use these types of loans to pay off any type of debt that you may have, from unsecured loans to credit card debt. Even though a debt consolidation personal loan is a great finance management tool, it won’t be for everyone, so you will need to carefully consider this option and weigh up both the advantages and disadvantages before you take on this loan.
What Exactly is a Debt Consolidation Personal Loan?
Debt consolidation is where multiple debts are taken and are made into just one. You are able to do this through personal loans, credit card balance transfers and mortgage loans. Money that you borrow for the purpose of paying off multiple debts is considered a debt consolidation loan as you will have one payment to make instead of several.
Specifically, a debt consolidation personal loan is a personal loan that is used to pay off debt. A personal loan can be applied for at a bank or an online lender. You will fill out an application form and your income, credit score etc. will be analysed before a personal loan is granted to you.
The benefit here is that a personal loan will usually have a lower interest rate than a credit card, but the interest rate will be higher than a car loan or mortgage because it is an unsecured loan. This means that there are no assets that can be repossessed by the lender if you fail to repay.
The Advantages of Debt Consolidation Personal Loans
There are a number of advantages to debt consolidation personal loans that you should take into account.
Firstly, you are able to use this type of loan to consolidate numerous payments into one, which will make your debt easier to manage and you are less likely to forget a payment which would incur late fees.
Secondly, you will be able to save money on interest as a personal loan generally has a lower interest rate, so transferring your high interest debts to this type of loan saves money.
Thirdly, your debt repayment will generally be lower than what you are currently paying with your existing debts.
Lastly, a personal loan will usually have a fixed payment and term, which means you will know exactly what you will need to pay and how long you will be paying the debt off for.
You might be wondering how and where you can get a debt consolidation personal loan from…
How to Get a Debt Consolidation Personal Loan
The first thing that you will need to do is to determine how much debt it is that you want to consolidate. You will need to add up all of your high interest debts that you want to be free from and gauge the amount that you owe. You are then able to apply for a consolidation loan for that amount.
However, applying doesn’t mean that you will get the loan as the lender will take into account various factors before granting the loan. You will usually need to have a decent credit and income in order to get a low interest rate loan, but you will find lenders that give personal loans to those with bad credit, but you will still need to have an adequate and steady income in order to get the loan.
If you are approved for the loan then you will receive the terms of the loan, which will include the amount that you will need to pay and for how long as well as the interest rate and fees.
Once you know how much the loan will cost you, you will need to compare it to the cost of paying off your debt without the loan. If you determine that you will save money by taking the debt consolidation personal loan then you can accept.
The lender will then issue you with the money that can then be used to pay off the debts. You will need to create a budget and avoid incurring debt again once you have paid off your debt.
Where to Apply
You are able to apply for a personal loan for debt consolidation at your local bank, but the approval criteria is pretty strict so you will need to have good credit and adequate income.
If the bank is not an option for you then you can consider online lenders. There are a number of online lenders that offer personal loans that you can use how you like, including debt consolidation.
The approval process with many of these lenders is less strict than a bank and they offer faster approval. With online lenders, you will generally only need to fill out an online form and may need to email or fax certain documents like your payslip as a proof of income.
Once, the online lender is sure that you can pay the loan back they will transfer the money to your bank account. There are even online lenders that will not run a credit check on you and will only look at your ability to pay the loan back.
If you are still struggling, you can seek the help of a debt counsellor that will help in managing your debt with you, by creating a budget and a debt management plan, where you can start paying off your debts.
A debt consolidation personal loan is not for everyone, but it is a viable option for those that are struggling with multiple high interest rate debts as you will be able to pay these off and only pay for the personal loan that will have a lower interest rate and monthly repayment. It is important not to incur any other debt during the process and to ensure that you are able to afford the debt consolidation personal loan and that it is cheaper than what you are paying currently.