Debt-Consolidation Do You Really Need It? This Will Help You Decide!

Do You Need a Debt Consolidation Loan? This Guide May Help You Decide

Holding too many debts in the credit report pocket is not healthy. These factors affect your present and future financial well-being. A high-interest debt hurts a credit score. It is possible that you may not qualify from high street lenders.

A credit score is a primary base for qualifying the lender’s loan-providing criteria. Get a debt consolidation loan if you are figuring out how to get out of these pending repayment cycles.

What does a Debt consolidation Loan imply?

A debt consolidation loan is an offering that direct lenders provide to individuals facing difficulty in managing debts. In this, a borrower takes out another loan to pay the debt. Instead of retaining the monthly repayments, the borrower deals with a single lender.  In general, the loan term lasts for about 5 years. There are two types of debt consolidation loans –

a)      Secured

In this, the amount you borrow is backed by an asset. It could be anything, your home or a car. In case of non-repayment, or loan failure, the lender may rightfully claim the asset.

b)      Unsecured

In this, the loan does not need any collateral. It is ideal if you have a sound credit score and need the loan within a short time frame. Failing to pay the loan might impact the credit score.

Debt consolidation loan reduces overall repayments and interest rates. In this way, it helps you manage finances easily. Moreover, you may get debt consolidation loans with no guarantor. It is not easy as it seems. The borrower must qualify the criteria set by the lender to get the loan.

What are the criteria to qualify for debt consolidation loans?

Different lenders have different parameters to define the affordability of a loan. Some lenders want the borrower to have an income above £7000, and others want the count to be £15000. It is just an example. Here are some common eligibility parameters you may need to qualify for the loan.

• You must be above 21 and a UK resident
• Must hold a reliable bank account in the UK
•  Pay repayments with direct debit
• You must not have any credit history of bankruptcy or CCJ
• regular income proof
• Must hold a credible asset for secured loans

While seeking the best debt consolidation loans with no guarantor from a direct lender, identify whether you qualify for the basic requirements.

Who Should Ideally Check the Best Debt Consolidation Loan Quotes?

Consolidating loans is not always the best solution. Especially when it increases the total money you owe, it also extends the time limit or the deadline and may make repayments unmanageable. Here are some situations where debt consolidation loans are preferable.

1)      Total debt is less than 40% of the gross income

Income is an important aspect of debt consolidation loans. You can calculate the number by dividing the total monthly debt by your monthly income. Eliminate the tax count.

2)      You have some high-interest debt

You may be able to consolidate your interest rates and reduce them too. For this, you need to have a stellar credit score. Debt consolidation is the best way to optimize the credit profile. It helps a borrower pay the debts almost quickly.

Check the best loan quotes if you want financial freedom and managed credits. High-interest debts dent your credit profile significantly. Debt consolidation loans help minimize the impact.

3)      You do not like multiple lender obligations

A debt consolidation loan helps reduce your obligations and responsibilities associated with multiple lenders. It helps simplify bills and streamline your repayment into a single and fixed schedule.

4)      You wish to lower interest rates, repayment terms, and overall loan costs

There are certain times when the financial situation suffers a jerk. The reason could be anything like income slash, inflation, and high-interest rate debts.

If you find it challenging to manage loans, you can choose a customized debt consolidation plan.  It will help optimize the interest rates, repayment terms, and total loan cost. Thus, debt consolidation loans with no guarantor are the best way to improve the credit score.

5)      Wish to save more money in the end

Instead of paying different repayments to different lenders, you pay one payment to a lender. It helps you save costs and leaves you with ample flexibility at the end of the month. You can transfer the remaining money either to your emergency amount or to meet a necessity.

These are some reasons that you might require a debt consolidation loan.

Before choosing a debt consolidation loan, identify your existing financial lifestyle-

• Do you depend on overdrafts to meet payments?
• Do you use a credit card to pay for necessities?

If yes, then debt consolidation may hardly help you. It may only provide short-term relief. Manage and improve your financial management habits. Debt consolidation is also a loan that you have to repay. With too many unmanaged credits, it can prove problematic at a later stage. Always think about the potential downsides of a loan.

What Loans Can You Consolidate?

With debt consolidation loans, you can quickly consolidate or merge any debt that could be paid. These include:

• Credit card debts
• Overdrafts
• Tax arrears
• Debt collection agency debt
• Payday debts
• Bailiff debt
• Outstanding utility bills

You cannot use debt consolidation loans for mortgage, car finance, and court fines. In short, if you are trying to consolidate a loan secured against an asset, you may not be able to do so.

Can You Get Debt Consolidation Loans with No Guarantor?

As mentioned above, a stellar credit score is a key to smooth loan availability. Finding a debt consolidation loan, lacking one, might be problematic. It does not eliminate you from securing one. It is just the chances to qualify are low. Some lenders consider less than ideal credit profiles to provide loans.

These lenders help individuals ensure a smooth solution to their mismanaged finances and debts. Here, the lender shares the risk of lending. The interest rates are much high than on a good credit score. If you have a hard time getting qualified for an unsecured loan, check secured loan quotes.

Secured loans might be good enough in this situation. It grants you greater flexibility in borrowing an amount. When an asset backs the loan, it is easier for a lender to lend. An asset reduces the risk associated with a bad credit profile.

In this way, you may not need a guarantor too. A guarantor is someone who is a close acquaintance of the borrower. He/she agrees to provide a stellar credit score to the borrower to qualify for the loan. The lender considers the credit profile and conducts different checks before providing the loan. These checks may impact or hurt a credit score.

However, sometimes, finding one becomes tasking. No one readily agrees to take such a risk. Moreover, the guarantor should have a decent income and credit score proof, apart from being a homeowner.

Finding such a person is nearly impossible. In this case, he can seek debt consolidation loans with no guarantor. 

You do not need a guarantor or a third party to validate the loan. Instead, you are solely responsible for the repayments. It helps you avoid any troubles associated with the guarantor cancelling the agreement or withdrawing support. A loan without a guarantor help retains good and cordial ties with the person.

Yes, you can qualify for a debt consolidation loan regardless of the credit profile. With bad credit, the loan becomes riskier, and the possibility of defaulting increases. Check other options before applying for debt consolidation.

Bottom Line

Applying for debt consolidation can be challenging.  It may have long-lasting consequences.  Analyze your circumstances and financial habits before applying for a loan. If you find it apt for your situation, debt consolidation may help improve credit score and reduce interest rates over existing debts.