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When is Debt Consolidation Worth it?

If you have multiple debts which are becoming unmanageable, a debt consolidation loan could be the best way to regain control over your finances. By taking out a loan where the amount is equal to – or exceeds – the total sum of the debt, you can repay these while just handling one affordable monthly figure.

This sounds like a great deal – and for many people it really is the best option available. However, this isn’t to say that it’s the best outcome in every situation. This is how to know whether a debt consolidation loan is the best solution for you.

When is debt consolidation worth it?

Usually, debt consolidation is worth it if the loan fulfils the following criteria:

  • The payments are affordable every month

  • You will pay a lower interest rate on this than on your debts

  • The repayment terms aren’t excessively long

  • You will ultimately end up paying less

Fortunately, when you choose us to help with your debt consolidation loan, we will help ensure this complements your situation. Instead of securing you something which we know you cannot possibly afford, we’ll be honest and strive to make the loan worth it.

How can I make sure this is the best value?

To ensure debt consolidation gives you the best value, you should calculate – via the repayment period and the interest rate – how much money you’ll be repaying.

For example, let’s say you have four different debts. This hypothetical situation could play out below:
 

Total Owed APR Repayment Period Total Cost
£1,000 20.2% 2 years £1,204.46
£5,000 16.9% 3 years £6,303.14
£2,000 19.9% 1 year £2,203.60
£2,000 13.3% 6 years £2,856.74

 
In this situation, the total repayable amount would be £12,567.94

However, if you chose a debt consolidation loan at £10,000 with an APR of 12.9%, repaid over two years, this should ultimately cost £11,319.48. If you were to consolidate all the debts above, the total repayable amount would be £1,248.46 less.

Is debt consolidation right for me?

Although we’ve discussed when a debt consolidation loan is worth it, you should also consider this option if you answered yes to the following questions:

Are your debts becoming unmanageable?

If you have multiple debts from various credit cards or unsecured loans, the interest rates can build up and really put a dent in your finances. As a result, it might be beneficial to request a one-interest loan to pay off the balances on those amounts.

This can also help keep track of finances and reduce the amount owed every month – giving you more financial control.

Do you have a poor credit rating?

Although those with a good credit history should be able to more easily apply for debt consolidation, you won’t be prohibited from applying if you have poor credit. Furthermore, this solution can often be a good way to better your score. For example, by repaying your creditors – while managing the monthly loan repayments – you should see this figure eventually start to increase.

Are you looking to save money?

Although it’s not guaranteed that debt consolidation will save you money in the long run, it can be deeply beneficial if you have expenses with high-interest rates. If this gets resolved through debt consolidation, you should ultimately end up saving money.

Sold? Decided this is the solution for you?

Debt consolidation is often the best solution for regaining control over your finances. If you think you could benefit from it then complete our quick application form and we’ll strive to find the best deal for you.

Hopefully, you could have the money in just a matter of hours, and your creditors could be repaid by this time tomorrow. Then you can just focus on making an affordable monthly payment and start saving money.

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