About Debt Consolidation
There are many different types of loan but, broadly speaking, for someone struggling to keep up with payments on their unsecured debts there are 3 potential options available to consolidate:
An unsecured debt consolidation loan
If you have multiple debts and would like to simplify your finances, a debt consolidation loan could help. By taking out a new loan to cover all your existing debts, you will benefit from only paying one creditor each month, instead of many.
It may also be possible to reduce your monthly outgoings with a debt consolidation loan, by spreading your repayments over a longer period of time. However, this will mean you pay more in interest than if you had chosen a shorter repayment period, although you could still reduce the overall amount of interest you pay if you consolidate high-APR debts such as credit cards.
A secured loan
Secured loans (sometimes called homeowner loans) are loans that are secured against property. If you own your home, a homeowner loan can be a good way of raising the money you need, whatever you need it for – and this includes consolidating your unsecured debts into a single loan.
Since it is secured against your home, a secured loan is likely to come with a lower interest rate than an unsecured loan – you're using your property as a guarantee that you can repay the funds, so there's less risk for the lender.
It might also mean you could borrow more money and pay it back more slowly (although repaying any loan over a longer time period may cost more, as it means you’re paying interest for longer).
Remortgaging your house
A remortgage is often also a good way to save on your monthly repayments by getting a better deal. But it can also be a way on consolidating your debts. By grouping your mortgage and your unsecured debts together, you will only make one monthly payment instead of many – and if you spread your debts out across the entire repayment term, the difference to your mortgage payments could be minimal. However you should note that repaying your debts over a longer term can increase the total amount of interest you pay.
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You need to think carefully before securing other debts against your home, since your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Debt consolidation may increase the amount to be repaid in the long term.
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