Consolidate your debt without loans

Debt consolidation means taking multiple smaller debts and combining them into one larger debt. It can be a useful tool for simplifying your finances. Instead of several smaller payments coming out of your account at various times throughout the month, a single, larger amount is paid out once per month.

What is a debt consolidation loan?

A debt consolidation loan is a loan taken out for the specific purpose of paying off numerous other debts. The basic theory is that by consolidating all the existing debts into a single new one, it becomes easier to manage your finances. While a valid option for simplifying your finances, there are many disadvantages to this approach.

Disadvantages of Debt Consolidation Loans

• Can increase debt in the form of interest on the loan
• May not cover all debts
• Could have up-front costs e.g., product fees
• May not make the original debt more affordable
• If you already have a poor credit rating, taking out another loan could make it worse

Advantages of Debt Consolidation Loans

• Combines debt into a single monthly repayment
• Could improve credit rating if you keep up with repayments
• Could lower overall debt repaid if interest is lower than existing debts e.g., credit cards.

Things to consider when deciding on a debt consolidation loan

With the above advantages and disadvantages in mind, we strongly recommend considering the following prior to committing to a debt consolidation loan.

1. How much extra debt will be added to your finances?
2. Is the extra debt from interest on the loan more or less than you would incur from interest on the existing debt?
3. Can you reasonably afford the repayments?
4. Are there any additional/up front fees to access the product?
5. What options/charges are there if you decide to pay it off early?
6. Does a consolidation loan fix the underlying cause of your financial issues?
7. How long will it take to pay off the loan?
8. Are there more effective debt solutions?

Is a debt consolidation loan a good idea?

If you aren’t struggling to repay your debts and are just looking to simplify your finances, a debt consolidation loan may be for you. However, if you are struggling with unaffordable debt, adding fees from a consolidation loan on top of this may make things worse.

Unfortunately, people in debt often think the only way to consolidate their debt is to take out a debt consolidation loan. This can be expensive as you usually end up paying extra interest on the new loan.

Fortunately, there are other methods of consolidating your debt, without incurring extra charges. At Cleanslate we offer several formal debt solutions that can help you repay your debt in a way that is affordable to you, freeze interest and charges and even write off unaffordable debt. Contact our team of expert advisors today to learn if we could help.