Debt consolidation can be beneficial in several situations: reducing your monthly payments, simplifying your budget management, or financing a new project by lowering your debt-to-income ratio.

Reducing Your Monthly Payments

The primary benefit of debt consolidation is lowering your monthly payments. For example, you may have several outstanding loans, and the combined payments are starting to unbalance your budget. Your disposable income is suffering. Debt consolidation allows you to reduce your monthly payments by combining all your loans into a single loan, with a single interest rate and a lower monthly payment. This gives you a more comfortable standard of living.

Financing a New Project

Second scenario: you are repaying several loans, your disposable income is stable, and your budget is well-balanced. But you have a new project in mind. For example, a new real estate purchase. With a debt-to-income ratio exceeding 35% (including insurance with your new mortgage), the bank will not be able to finance your project. In this situation, debt consolidation allows you to lower your debt-to-income ratio, making it compatible with your future mortgage.

Including a cash advance

Debt consolidation can also include a new project. For example, if you consolidate your loans to reduce your debt-to-income ratio to finance a new kitchen, it is possible to include this financing directly in your debt consolidation through a cash advance. For all your existing loans and this cash advance, you will then have only one monthly payment.

Disadvantages to Consider

Debt consolidation has several advantages, but certain factors must be taken into account. First, refinancing loans results in a higher total cost, even if it reduces your monthly payments. This is because this solution involves extending the loan term. This means that interest payments will be made for a longer period, hence the higher total cost.

Similarly, additional fees may apply:

• early repayment penalties (IRAs), for example, if your debt consolidation includes one or more mortgages, or a consumer loan exceeding €10,000;
• bank fees;
• brokerage fees;
• the cost of borrower’s insurance;

mortgage fees for debt consolidation secured by a mortgage.

All Loans and Debts That Can Be Consolidated

Within your debt consolidation, you can combine all your consumer loans:

• consumer loans;
• Personal loan;
• Revolving credit;
• Car or motorcycle loan;
• Lease with option to buy (LOA) (except for the first year, when the vehicle can be purchased according to the terms of the LOA contract);
• Travel loan;
• Home improvement loan;
• Cash advance.

You can also include debts in your debt consolidation:

• Tax arrears;
  Unpaid bills (electricity, internet, water, gas, etc.), rent arrears;
• Child support;
  Condominium fees;
• Family debt or a sum owed to a private lender;
• Employer loan;
  Bailiff’s debt.

To apply for debt consolidation, you must meet the eligibility criteria. For example, you must have at least two loans to consolidate, regardless of their type (if you have an existing loan and want additional cash, you have two loans). Similarly, the lender’s financial behavior must be deemed reliable, and the borrower’s creditworthiness is assessed.

Finally, certain financial situations preclude debt consolidation: this is the case, for example, for those who are over-indebted. Therefore, improving your chances of obtaining debt consolidation involves, among other things, demonstrating a stable employment situation, sound financial management, and not being listed in any credit bureaus. This helps guarantee repayment of your consolidated debt in monthly installments.