Debt consolidation can be an option that helps you manage multiple debts. It involves combining several debts into a single, larger debt, which can give you greater control over your outgoings. Personal loans can be an effective tool, here’s how they can work for you.

What is debt consolidation?

Debt consolidation is the process of taking out a new loan to pay off other debts, generally unsecured ones. By consolidating multiple debts into one loan, you can simplify your monthly payments, you could potentially save on interest costs or spread your payments over a different term.

The role of personal loans in debt consolidation

Personal loans are a popular choice for debt consolidation for several reasons:

• Fixed interest rates: Personal loans typically have fixed interest rates, which means your interest rate won’t change during the duration of your loan. This predictability can make budgeting easier.
• Flexible terms: Lenders offer various repayment terms, from one to several years, allowing you to choose a period that fits your financial situation.

 Consolidating debt with a personal loan:

• Start by assessing your debts: It can be helpful to list your current debts, including credit cards, store cards, catalogues, and other loans, how much you owe, your interest rate and how much your monthly repayments are.
• Apply for a Personal Loan: At V12 Personal Finance, we work with a trusted panel of lenders so you can see all your offers in one place. Once you’ve chosen a lender, you can choose to apply for a loan amount that best meets your needs.
• Pay off your debts: You can use the funds from the new personal loan to pay off your chosen debts.
• Repay your Personal Loan: Make monthly payments on your new loan until it is fully repaid.

Benefits of using personal loans for debt consolidation:

• Simplify your finances: One payment instead of multiple payments to different creditors.
• Lower costs: Potentially lower your overall interest rate and monthly outgoings.
• Improve your credit score: Making regular, on-time payments can improve your credit score over time.

If you are a homeowner, you may have the option to choose either a secured or unsecured loan, a secured loan means that the loan is secured against your property and can mean you could borrow more money overall, although this depends on the lender and your individual circumstances.

Considerations before consolidating debt:

• This type of loan may not reduce your overall cost of borrowing. You need to consider the interest rates you're currently paying and compare them with the options provided.
• If consolidating existing borrowing, you may extend the term of your debt and increase the total amount you repay. You should always compare the interest rates or APRs (Annual Percentage Rates) of your existing debts with those of the debt consolidation loan offered, to ensure that you are benefitting from consolidating your debts.
• You should give consideration to any existing debts that may be on 0% APR finance/free of interest or existing loans that may be coming to the end of their term.
• Financial habits: Consolidation doesn’t solve financial problems on its own; it’s also important to address spending habits that have led to debt.
• If you choose to take out a secured loan, there may be additional fees. It is really important to make sure you read and fully understand all documentation given to you. If you are unsure of anything always ask questions to the lender. Do not sign anything until you are sure that you understand the full details of the loan you are taking out, including any fees or additional charges. If you need additional support reach out to the lender or an expert such as a financial adviser.
• Lenders may provide you with details of loans secured against your home. If choosing a secured loan, your home is at risk, think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
• Secured loans will attract a broker fee and a lender fee upon completion of the loan and these may be added to the amount borrowed. Full details will be provided by the credit broker.

Conclusion

Debt consolidation through personal loans can make managing your repayments easier and could help you regain control over your financial health. It can provide relief from high-interest debt and help you pay back what you owe over a term you are comfortable with.  It’s crucial to consider the terms of the loan and your ability to keep up with repayments. With careful planning and disciplined budgeting, debt consolidation can be the first step toward financial freedom.

Find out more and check your eligibility here. 

Credit is subject to status. You must be a UK resident aged 18 and over. Regular income provable. Minimum loan term is 12 months. If you are a homeowner, V12 Personal Finance, which is a trading name of V12 Retail Finance Limited, may provide you with details of loans secured against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. The % APR rate you will be offered is dependent on your personal circumstances. If consolidating existing borrowing, you may extend the term and increase the total amount you repay. Secured Loans will attract a broker fee and a lender fee upon completion of the loan and these may be added to the amount borrowed. Full details will be provided by the credit broker.

V12 Personal Finance is a trading name of V12 Retail Finance Limited. V12 Retail Finance Limited is a credit broker and not a lender. V12 Personal Finance introduces to one or more lenders or credit brokers, for which we will receive a fee or commission payment for each successful paid out loan. The amount of the fee or commission payment will vary depending on the product chosen and the amount of credit taken out.