The Unique Finance Blog

Are you tired of trying to remember which monthly payment is due and when? Each with a different amount and a different due date? Do you shiver when you receive a reminder notices in the mail?

If so, then applying for a debt consolidation loan might be a good option for you.

What exactly is a debt consolidation loan?

As the term implies, a debt consolidation loan is a loan from a lending company to pay off all your existing debts. This means that instead of making several monthly payments, you pay just one as a consolidation loan will take care of the rest.

It’s a very convenient way of managing your personal finance. If you have several debts, and the interest is causing financial stress, you may want to consider a debt consolidation loan as a solution to reduce your financial worries.

Debt consolidation loans cover a range of unsecured debts, from credit card debt through to medical and utility bills. The major benefit with this type of loan is the lower interest rate when compared to the interest you pay on each debt individually. This provides you with lower monthly payments and can actually save you money. This is why many people also consider it a great method to get out of debt.

You must be aware however, like any other loan or credit solution, debt consolidation loans can have a downside.

Consolidation is a secured loan type so you might be required to use your house as collateral.
Consolidation loans do not cover high value secured debts like your home loan.
Interest rates vary from lender to lender and are calculated on your credit history.

Generally a personal finance company will assess whether debt consolidation will actually help you financially or not.

A lender will generally look at the following to make an assessment:

The total value of your outgoing debt
Your current affordability
Your past and current credit history
Your current employment status

If the lender concludes that your repayments are less than your existing outgoings, and within your financial affordability, then the chances are you will be approved for a debt consolidation loan.

Keep in mind that low interest rates are usually available for people with really good credit ratings. This is not to say that you will be turned away if you have bad credit - you just might have a higher interest rate applied to your loan. A good finance lender will be upfront about whether a consolidation loan is right for you to avoid you sinking further into debt.

A debt consolidation loan can become your salvation if the burden of debt is becoming too much. Remember that a debt consolidation loan is only an effective solution if accompanied by a good budget. Learn to manage your finances effectively to reduce financial stress. Plan ahead and be aware of the risks and rewards involved.

Shelly Maron is a finance journalist writing for Instant Personal Loans a New Zealand finance company. Learn how debt consolidation can help you consolidate unsecured debt into one easy to manage loan.