Am I eligible for debt consolidation?
If you have more than one unsecured debt, such as a credit card, store card, overdraft or personal loan, you may be able to repay them all with one loan. That would leave you with one monthly payment – which could make managing your finances a lot simpler – and only one lender to deal with.
If you are able to spread the debt consolidation loan over a longer period, you could lower your monthly payments as well. While this is a short-term benefit, you would pay more interest overall, so you’d have to decide whether it’s worth it.
If you’re considering debt consolidation, Debt Advice Now provides some debt advice to help you decide whether it is right for you, before you apply. In the meantime, read on for some things to consider when you’re thinking about consolidating your unsecured debts.
Debt advice for debt consolidation
When you approach a lender about a debt consolidation loan, they will ask you about your earnings (as they would with any loan). If your earnings vary from month to month, or you work seasonally, you may not be eligible for a debt consolidation loan: lenders want to know that you can afford to repay the loan and will be able to make the repayments on a regular basis.
If your earnings are irregular, or you cannot afford the payments towards a debt consolidation loan for some other reason, but you would still like to consolidate your debt payments into a single payment per month, another debt solution may be more suitable.
Furthermore, consolidating all your unsecured debts isn’t always the right approach. For example, a low-interest overdraft may be worth keeping instead of consolidating, as the interest you may pay on a new loan could be more expensive.
While consolidating unsecured debts can make life easier, be aware that ‘freeing up’ credit cards, overdrafts and store cards can tempt you to spend on them again. And if you are relying on debt to meet your day-to-day living expenses, it may well be time to get further debt advice or find another solution.