If your plans for 2022 are to become debt free, then you may have considered taking out a consolidation loan. Debt consolidation loans are a way of paying off any existing debt you have at a lower interest rate. This might include overdrafts, credit cards, finance agreements or any other type of borrowing.
Debt is common and most people will be in the process of re-paying some sort of loan or contract. A single person at one time might be paying back a Hire Purchase car, a phone contract, a credit card and an overdraft… all of these individual repayments can get overwhelming.
If this sounds like you then don’t worry! It’s normal to worry about your finances, with the average UK adult spending the equivalent of an entire year worrying about money over their lifetime. So you’re not alone, and there is always a solution.
Why take out a Consolidation Loan?
It might seem like a strange concept to take out a new loan if you’re already in debt… We often get asked why doing this would be beneficial. The aim of consolidating your debt is to help you pay off all of your debt quicker, and at a lower rate of interest.
Say that a person currently repaying their hire purchase car, phone contract, credit card and overdraft took out a consolidation loan with us to pay off any existing debt they have for good. They would then re-pay their loan to us in one monthly repayment, over a set period of time, at a lower interest than the original debt.
Like all things financial, taking out a consolidation loan comes with it’s pros and cons…
- You’ll have a clear end date for when you’ll be debt free. You can also spread the repayment over a longer period of time, reducing the monthly payment.
- You’ll pay one monthly repayment at one fixed cost. This will also help you to keep on top of how much you need to budget.
- Consolidation loans usually have a lower rate of interest, compared to the original debt you were repaying.
Things to Watch out for
- A consolidation loan won’t be helpful to you if the debt you owe is larger than what you can afford to pay.
- You might not be approved if you are already behind on your repayments.
- It only makes sense if the loan is cheaper than what you were originally paying.
At London Mutual, we believe that responsible borrowing can be an important tool, enabling us to do things that wouldn’t otherwise be possible. But like any tool, it needs to be handled with care.
We’re all about helping our members get into financial shape. That starts with helping people to get off the expensive debt treadmill so they can live without money worries.
Credit Union Consolidation Loans
Streamline your finances by combining overdraft, credit cards and any other borrowing into one simple monthly repayment.Find out more