When the bills keep coming, your loan repayments are unmanageable and your credit card debt is out of control, you may start thinking about debt relief options. One such option is a debt relief loan.

But what exactly is a debt relief loan, how do they work, and what should you know before applying for one?

Debt Relief Loans

A debt relief loan, also known as a debt consolidation loan, is a new loan taken out to pay off existing debts such as personal loans and credit cards. When multiple debts are streamlined to a single monthly repayment, you can avoid accumulating missed payments and extra charges.

Debt relief loans can be either secured or unsecured. A secured loan is one where you put up an asset with greater value than the loan (for example, your home), as collateral for the loan. Unsecured loans require no collateral, however they therefore incur a higher interest rate, as the lender is taking more risk.

As they are tailored to people who have incurred even larger debts, almost anyone can get a debt relief loan. The lender will require you to complete an application and you will need to provide personal and financial information. This will help determine the loan terms you are offered, including the repayment amount, the length of the loan and the interest rate.

Benefits of Debt Relief Loans

By reducing the number of repayments you need to make each month to one single payment, you are less likely to miss a repayment (and therefore incur extra charges and default listings on your credit file).

If you have sought financial advice and have been recommended a debt relief loan, with help you can work out a budget to ensure affordable repayments to repay your creditors faster. Debt relief loans can actually save you money when the interest rate is lower than that of your existing bad debts.

What to Consider With Debt Relief Loans

Before proceeding with a debt relief loan, it’s important to understand the potential downsides of this debt relief solution. It may seem like a quick fix, but there can be hidden fees and penalties. Debt relief loans typically have a longer term which enables borrowers to make a lower monthly payment.

Stretching out the term leaves the consumer with a greater debt burden. And if you’re not addressing the financial behaviour that helped you amass debt in the first place, it may be that a debt relief loan won’t be the answer.

While debt relief loans could be the best option for you, people who are burdened with debt need to carefully consider their personal financial situation and seek free financial advice.

For financial advice or to apply for a debt relief loan, it is a good idea to speak with a debt consolidation broker. They can help you predict outgoings, take control of your finances, and move forward to live debt free in the future.