A consolidation loan is one where you take all of your debts and put them together so that you are left with just one to pay. There are advantages and disadvantages to doing this and it is worth being aware of them before you decide whether this is something that you would like to do.
Having lots of debts can get you in a muddle. It can be daunting knowing that you owe money to so many different people and it can sometimes be confusing knowing what you owe and who to. Having it all in one place means that you will be able to know exactly how much you owe and to who and you will not have the fear that you have lots of debts that you had forgotten about that might suddenly appear. You will also have one repayment a month which will help you to know exactly where you stand financially. With a mix of debts you may have different amounts to repay at different times of the month and it could be difficult to manage your money and know whether you will have enough to last you until you next get paid.
However, a consolidation loan can be expensive. Taking all of your debt and putting in together with just one interest rate to be paid back over a long term can mean that the total interest you pay will be more than if you concentrated on paying them off separately. However, if you have debts such as credit cards, which have no formal repayment schedule, it is hard to work out how much you would end up paying in interest overall because it depends on how quickly you repay it. You may have found that you will have just ignored it and not paid it off, without having a formal repayment system in place, which is what the consolidation loan will create.
One trap that you have to be aware of is consolidating and then getting more debt. Once your debt is all in one place, then you may have an overdraft available again or a paid off credit card which you could potentially use. If you are in the habit of using them, then you may find it too easy to start using them again and start building up debt in different places. It is wise to try hard not to do this and to avoid getting into any more debt. It may mean that you need to cut up your credit card or cancel your overdraft in order to make sure that you do not have the temptation there.
If you want to pay off your debt without getting a consolidation loan, then this will usually be cheaper and it could be quicker too. You will need to be string though and come up with a repayment plan of your own. Find out what you owe and who too and how much each debt is costing you in interest. You then need to concentrate on paying off each one. It will make financial sense to pay off the most expensive first, but some people prefer to get rid of the smaller ones first so that they are left with a lower number of debts which makes them feel more motivated and more in control. Some people find this difficult to do because they do not have to do it. They may find the calculations difficult as well as getting together the necessary money to pay the debts. Only you know whether you will be able to do this or whether you will be better off getting a consolidation loan and paying it off that way.
If you do decide to get a consolidation loan then it is important to choose one that offers a good price. Obviously the interest rate could change, but compare current interest rates as well as looking at other costs of the loan and see which is the cheapest. Look at other factors too such as the reputation of the lender and what their customer service is like, but do make sure that you are aware of all of the costs and the interest rate as well as any fees that may be charged during the course of the loan such as for early redemption or missing a payment.