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5 Benefits Of A Debt Consolidation Loan

16 February 2021 No Comment

Life can be unpredictable and debts can happen at unexpected moments, whether it’s due to education payments, constant car problems or erratic spending. While debts can sometimes be inevitable, there are several ways to handle your debts and choosing the best method is the thing that counts.

Debt consolidation loans are one method of managing and paying off debts that can make life much simpler by combining all of your debts into one single payment. They often come with a much lower interest rate than what you were paying out for each individual debt, which can help to give your credit score a boost. We have outlined 5 benefits to debt consolidation loans in the UK, so you can decide whether they would be the best option for you.

  1. Multiple Payments Become A Single Payment

Whether you have two debts to pay off or multiple debts, debt consolidation loans merge all of the figures together into one lump sum, which can feel like a weight off your shoulders. This doesn’t reduce your debt at all, but combines all of the repayments so you don’t have to worry about the individual amounts. Instead of paying for multiple debts, you will repay one figure to a sole lender.

  1. Improve Your Credit Score

Taking out a debt consolidation loan can help to boost your credit score in only a few months. This is because you’ll be reducing your credit utilisation rate, which is a number that comes from how much you owe divided by your credit limit. It plays a huge role in your overall credit score and by combining your debts into one loan, you will see a significant improvement.

  1. Lower Interest Rates

Most unsecured debts will have high interest rates, which can add unmanageable amounts to the amount you need to repay each month. By combining all of the debt accounts into one, you will be paying less money in the long run, rather than paying for multiple accounts with high interest rates in the long run. If you have good to excellent credit, you may also be able to secure a lower interest rate on the debt consolidation loan, helping you to save even further.

  1. Faster To Pay Off

Debts earn interest, no matter how long it takes for you to pay them off, so most lenders don’t care if it takes you years to repay them. A benefit of debt consolidation loans is the process takes multiple factors into account when deciding the length of the loan, such as credit score and income, to come up with a payment plan that works. This means that most debt consolidation loans have a shorter payback period, so you can pay it off much quicker.

  1. Peace Of Mind

Something that comes alongside managing multiple debts is an overwhelming feeling or stress. By merging all of your debts into one manageable sum, you will feel much more relief and a sense of understanding around how much money you owe in total, rather than having scattered debts.

With any financial solution, you will need to carefully assess your situation to determine if a debt consolidation loan is right for you, but there are significant benefits to be had through debt consolidation that make them a worthwhile option to consider.

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