Pros and cons of bill consolidation loans

When you owe money to multiple creditors, it can prove difficult to manage your debt obligations. Bill consolidation loans help to simplify your finances because you'll be making just the one repayment each month. This means that you're unlikely to default on the agreement and damage your credit rating. Just to make sure that there aren't any problems, you can pay by direct debit.

If you have sufficient disposable income, you can reduce the term of your loan for bill consolidation. This will mean that you'll pay substantially less cumulative interest. Contrarily, if you are struggling with respect to affordability, you can increase the repayment term. Spreading the cost of borrowing over longer will reduce how much you need to pay your creditors each month.

You're likely to find that consolidating bills enables you to pay off your credit obligations sooner. For example, credit card debt is a form of revolving debt because it has no defined term. In theory, it could continue for the remainder of your life, but you could pay it off in x years time with a debt consolidation loan. The danger is that you use the money to clear your charge cards, leave them open, spend additional money and end up in more debt than when you originally started.

If you've experienced problems with your credit in the past, you'll find that the cost of borrowing is significantly higher. This is because past indiscretions are recorded by credit reference agencies for the next 6 years. Serious credit issues may mean that you're unable to get approval for a loan without the provision of collateral. If you use the equity in your home to secure a loan and default on the terms of the agreement, you could find that your home is repossessed.

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