Will debt consolidation cost me more overall?
If you have multiple debts and would like to reduce your monthly outgoings, a debt consolidation loan could be right for you.
A debt consolidation loan can potentially save you money both in the short term (i.e. on a monthly basis) and in the long term (you could pay less overall towards your debts). However, it’s not always
possible to do both, so you should consider whether you would benefit more from reduced monthly payments or a lower overall repayment amount.
*How debt consolidation could save you money*
Your debt consolidation loan should be big enough to completely pay off all the debts you are consolidating. You will then repay this amount over time to your new lender, meaning you’ll only have one monthly payment to deal with.
You can make your monthly outgoings smaller by arranging to repay the debt consolidation loan over a longer period of time than you would have repaid your original debts. On a month-to-month basis, this will leave you with more ’spare’ money, which can be a big boost to your finances.
It may also be possible to save money in the long term if there is a big enough difference between the interest rate on your debt consolidation loan and the rates on your original debts.
Over the same time period, a lower interest rate on your debt consolidation loan will mean you pay less interest.
But if you decide to spread out your repayments – and therefore pay interest for longer, too – you could still end up paying more interest in total than if you had kept on with your original repayments.
*Does it matter if I pay more overall?*
Although you could pay more overall towards your debts if you repay your debt consolidation loan over a longer period of time, many people don’t consider this the most important thing if they are saving money on a monthly basis.
It’s easy to get caught up in the bigger numbers – for example, your debt consolidation loan might cost £5,500 to pay off over a period of five years, instead of the £5,000 it would have cost to repay your original debts over three years – but the reduced monthly payments should still have a positive impact on your ability to manage your finances. Many people consider this the most important thing.
More information on debt consolidation loans can be found on debt consolidation experts (http://www.debtadvisersdirect.co.uk/) Debt Advisers Direct website.