For people who have several loans and different repayment plans at various times of the month, the idea of taking out a debt consolidation loan, such as the ones from Evolution Money, may be appealing. This type of loan works by consolidating all of your debts together. Rather than paying back individual debts at different times, one loan is used to manage existing debts in a single monthly repayment.
As with any loan, there are lots of factors to consider before making any final decisions. A debt consolidation loan can be advantageous to people who may find it hard juggling repayments of several debts from various lenders, especially if they have several credit cards. It can be tricky remembering to make payments and keep track of what is owed, which could further increase debt levels.
By taking out one loan to pay off all of these individual debts, it can make it easier to budget and manage your finances on a monthly basis. You can close down your existing loan or credit card arrangements and streamline your debts to have just the one lender.
With this type of loan, you may also be able to pay the debt back over a longer time frame. This could reduce your monthly outgoings, which can help you to get back on track with your finances and, crucially, may provide the incentive for not getting into any further debt. Better still, if the loan has a lower rate of interest than your original debts, then you could even reduce the amount that you have to pay back.
If you can pay the loan off and stay debt-free, then this can go a long way to boosting your credit rating and proving that you are a responsible borrower.
All loans have pros and cons, and this type of loan is no exception, so you need to weigh up all of the risks and know what you are dealing with. It could be worth looking at your existing debts first to see what you can afford to pay back or if there are any outgoings that you can minimise to get your finances into better shape. Although it can prove worthwhile to some, a loan that consolidates your debts needs careful consideration.
Always seek expert advice on how to consolidate loans you might have to ensure that you do not end up piling up debts over an extended period of time. This could happen if the interest rate is higher than those of your original debts, so consider what you can afford and what the best option for you is. What you don’t want to be doing is paying more over the long term and adding to the amount that you already owe. Scrutinise interest rates and compare your options to get the best deal.
Avoid borrowing more money than you need, as this will only add to the burden of paying off your debts. Additionally, check to see if you will need to pay any early-repayment charges for your existing individual debts. Factor these into your calculations when deciding if a consolidated loan makes financial sense for you. Similarly, if the chance does arise to pay off your consolidated loan early, find out what sort of penalty charges might be imposed.
When you are wading through the options to consider how to consolidate loans you have, make sure that you understand everything that is involved and what it means for you. According to the BBC, these loans often come with payment protection insurance, so make sure that the terms are fair and cover you if you fall ill or are made redundant, for example.
When you take out a loan to consolidate your debts, this may be secured or unsecured. A secured loan may offer you a lower rate of interest and therefore could be tempting, but remember that it will usually be secured against your home. If you fall behind with any repayments, you run the risk of having your property repossessed, so think this through carefully before making any firm decision.