Running up debts can be surprisingly easy and happen to almost anyone. It’s not hard for overdraft fees and credit card bills to mount up, even if you’re being careful, and you can end up with debts in a range of different accounts all at once. While we’d always advise you to stay on top of your finances and use savings where possible, we understand that these things can happen.
One way of dealing with debts across a number of accounts is a debt consolidation loan. This is where you move some, or all, of your existing debt from multiple accounts into one standalone account. This helps you manage your borrowing and reduce costs.
This is a situation you may need if you have run up credit card debts at high rates of interest – or extended your overdraft too many times.
A debt consolidation loan allows you to take out one loan to pay off multiple debts – like credit cards – and reduce total monthly payments.
By paying off outstanding debts, you could potentially close your old accounts with the credit from the new one. You will still have a debt, but instead of owing multiple creditors, it will all be in one place.
You will borrow enough money to pay off your current debts and owe the money to just one lender. This cuts your spending and can put you back on track with your finances.
So how does a debt consolidation loan work exactly? Below is our guide on how debt consolidation loans work, step by step.
Step one: Work out the total of all the debt in your accounts. Do this so that you can work out how big the debt consolidation loan you need to take out will be.
Step two: Apply for a guarantor debt consolidation loan. Compare and apply for debt consolidation loans through Guarantor Loans. Having the ability to rely on a guarantor means you are more likely to be accepted for a debt consolidation loan with bad credit.
Step three: Use the debt consolidation loan to transfer all of your debts into one singular account. This will allow you to combine all your repayments into one and stop you owing money to multiple places.
Step four: Pay off your debt consolidation loan promptly and in regular instalments. If you do this effectively it may even reduce the overall amount you owe.
A debt consolidation loan should be an unsecured loan. This means it isn’t secured against an asset, so the risk of having something taken away from you if you can’t make repayments isn’t there. If you want to understand unsecured loans a little better, check out our guide on unsecured loans vs secured loans.
The bonus of using a guarantor loan for debt consolidation is that it can keep interest rates and fees lower than some other forms of debt consolidation loans for bad credit. A guarantor will reassure lenders that the repayments will definitely get made.
A debt consolidation loan will generally be used for paying off a selection or combination of the following types of debt:
Credit cards and store cards are incredibly useful items to have. They can allow you to improve your credit score when used effectively and earn points to use on a number of things. When not managed properly though they can be an easy way to rack up debt, especially if you have more than one. Using a debt consolidation guarantor loan can allow you to move all of these debts to one manageable place.
Overdrafts often feel like a good idea at the time, allowing you to dip into your bank account a little more when you need it. They can, however, become difficult to manage, especially when they start adding interest or other charges. Many find themselves living in their overdrafts each month, struggling to get back to zero. If you have several overdrafts it can be even more difficult, especially if this is then combined with other debts like credit card repayments. A debt consolidation loan can allow you to regain some control and move all of these to one account that can be paid off in convenient amounts.
Personal loans may be needed for a range of possibilities, whether it’s to cover unexpected expenses, buy a high-value item like a car or a number of other reasons. What started out as useful could become awkward when you combine paying it off with other existing debts, like an overdraft or credit card bills. A guarantor loan for debt consolidation can merge these debts into one account and leave you with one single monthly payment spread over a period of time.
There may be other reasons you need a debt consolidation loan, and at Guarantor Loans we are here to help you find the best solution for consolidating your debts. It’s worth considering your own situation before taking out a debt consolidation loan as they may not be right for everyone.
A debt consolidation loan isn’t the right solution for everyone. We would recommend using a guarantor loan to consolidate your debts if you’re struggling with managing a range of debts, but also if combining them is a sensible thing to do.
It’s worth checking out whether doing this would make the amount you’re paying more affordable. In some instances it will work out cheaper to consolidate your debts in this way but that’s not always the case.
A guarantor loan allows you to be approved for slightly lower rates of debt consolidation loans as the buffer of a guarantor to pick up any potential missed payments is appealing to lenders. However, we’d recommend only using a guarantor if you have a strong relationship with the person vouching for you. Guarantor loans aren’t for everyone as they rely on strong and trusting relationships, but they are an excellent solution for those looking to consolidate their debt.
Your debt consolidation loan eligibility may depend on a number of factors. Primarily, you’ll need to have several forms of debt to consolidate. For a debt consolidation guarantor loan your credit rating shouldn’t affect your eligibility, but each lender will look at everyone’s situation differently, so keep that in mind when you’re applying.
A debt consolidation guarantor loan has a lower representative rate than traditional bad credit loan lenders, which can make it a more affordable option for those with mountain debts or bad credit.
At Guarantor Loans we work with a number of trusted lenders who specialise in loans for people in these situations. To view our debt consolidation lenders check the lenders page.
The debt consolidation loans we can help you secure are all guarantor loans, this means that someone you know vouches for you and acts as a ‘guarantor’. They’ll pick up any payments that you miss. For more information on what guarantor loans are, we’ve created a series of guides.