Getting into debt can be a difficult situation to get out of and it can have a big impact on your future. Taking out a credit card, store card or loan can help you to buy the things you want but high-interest rates can end up costing you a lot more than the actual cost of the purchase.
Being in debt can prevent you from being approved for future loans, so taking out credit should be a process that is carefully considered. If you have got to the stage where you have accumulated debts, either through loans, credit cards, or store cards, you may be feeling overwhelmed by the amount of debts you are repaying.
This situation can often affect your mental health, worrying about not being able to afford bills and the consequences of missing payments, plus the threat of getting charges for any missed repayments. Your credit score will also be affected by any missed payments and having a large amount of debt can make it difficult to get any finance approved until you have cleared the existing debt.
If you cannot afford to pay off your existing debt and you have multiple loans with repayments going out of your account each month, it might be a better option to consolidate your loans, especially if you are paying a high-interest rate on any of the loans or credit cards.
How consolidation loans work
A consolidation loan is where you take out one loan to repay all your outstanding debt. As well as making it easier to keep track of repayments, as there will be just one monthly payment, you may be able to reduce the overall cost of repaying the loans and pay the debt off sooner.
As an example, let’s say you have an existing loan with £2,000 outstanding and an interest rate of 18%, credit card debt of £1,000 with a 20% rate, and a store card debt of £1,000 with a 28% interest rate. If you were able to take out a loan of £4,000 with an interest rate of 15%, you could pay the other debts off, and you will save a significant amount in interest. By reducing the number of loans, you may be able to improve your credit score too.
You should also consider whether it is an option to move credit cards onto a 0% balance transfer card, as this will mean you can avoid paying interest for a specified amount of time.
Can I get a consolidation loan with bad credit?
You may find it difficult to get approved for a loan with a standard lender if you have adverse credit, but a credit union loan could be the right solution. A credit union loan usually has lower rates of interest than credit cards or high interest loans and they are often approved for people with adverse credit history.
The Central Liverpool Credit Union provides loans that can be used for consolidating debts or for other purposes.
Learn more about the easy application process.