When looking for any financial product, you'll want to make sure that you're getting good value for money. Making the wrong decision can see you paying over the odds on monthly repayments, which could potentially worsen your financial position in the long-run.
In order to avoid any costly mishaps, you should opt for a debt consolidation loan with a low interest rate and low monthly repayments. But how can you find the best rates? Not to worry, we're here to help!
In this article, we'll take a look at how to use debt consolidation loans and how to find the best rates so that you can stay on top of your finances and get one step closer to a debt-free future.
How to Get Rid of Debt Quickly Using Debt Consolidation
For those asking 'why is debt consolidation a good idea?', one of the main advantages of these loans that you can use them to get rid of your debts. If you're working towards a debt-less future, read our top tips on how to get rid of debt quickly using debt consolidation.
1. Find a loan with a low interest rate
If you're looking for a debt consolidation loan, it's likely that you have multiple high-interest debts that you want to get rid of. One of the first steps in using this method to get rid of debts quickly, is finding the a loan with the best rates. Don't worry, we'll show you to find the best debt consolidation rates later on in this guide. Once you've found the best rate, you're ready for step two.
2. Use your new loan to pay off existing debts
Are your current rates poor? If so, once you've received your debt consolidation loan you can use this to pay off any high-interest debts. This includes financial products such as credit cards, payday loans or any other high-interest loans that you're currently paying off. If your loan is large enough, you may be able to pay off all of your other debts, so that you only have to account for one monthly repayment rather than juggling multiple debt repayments.
3. Keep up with your monthly payments
It's important to remember that using a debt consolidation loan doesn't reduce the amount of money you owe. You'll have to keep up with your monthly repayments in order to improve your financial situation. If you've managed to obtain a debt consolidation loan with a good rate, then you should be able to clear your debt more quickly if you stay on top of your payments, and pay on time.
Get the Best Rates for Debt Consolidation
As mentioned above, if you want to get rid of debt quickly, you'll need to scour the market to find the best rates. This can help you to save money on interest payments, and work toward reducing or eliminating your debt over time. Find out how do just that below.
Work out how much you are spending in interest
Before searching for a new loan, don't forget to work out how much you are spending on interest currently. With this information, you can calculate how much money you could be saving by opting for a debt consolidation loan with a lower interest rate.
If you have multiple debts from different lenders, you'll need to work out how much interest you're paying to each lender and add the values up to determine how much you're spending in interest per month.
Make the most of comparison sites
It can be extremely time-consuming, draining and confusing visiting each individual lenders' site and manually comparing different offers. Comparison sites do all the hard work for you and allow you to see representative APRs side-by-side, so that you can quickly find the best rate for you.
Check if it's cheaper to borrow more
Generally, lenders tend to base their APRs on the amount that you want to borrow. In some cases, if you borrow more, you can obtain a lower APR than if you were to borrow a smaller amount of money. You'll need to carry out some calculations to find out whether borrowing more will actually save you money. However, you may find that you only need to borrow a small amount more to obtain a lower APR, so it's well worth doing the research to see if this works for you.
Can a Personal Loan Work?
Debt consolidation loans are normally secured against assets such as your house or car. This means that if you fail to keep up with your repayments, you'll lose the secured asset and the lender then has the right to sell your assets in order to cover the amount owed. If this sounds like a risky option, you may want to opt for a personal loan.
Personal loans are unsecured, therefore, you eliminate the risk of losing your home or car if you can't keep up with repayments. However, it's important to note that personal loans normally have higher interest rates than secured loans, so you may end up paying more in the long run.
Is a Credit Card Better?
A loan is a significant and often long-term commitment, so it may not suit every individual situation. Credit cards can offer a more flexible solution for your finance shortfalls.
With a loan, you have make regular monthly payments until the debt is cleared. If you're a freelancer, seasonal worker or in part-time employment, you may have irregular income patterns that make it more difficult to make these monthly payments.
Alternatively, with a credit card there is much more flexibility when it comes to credit cards. You'll have to pay the minimum payment each month, however, you can pay off more money each month and clear your debt without having to worry about early repayment fees.