Thinking about getting debt consolidation loans, but aren't sure whether or not it would be a good idea? Here are the top tips to consolidate loan and credit card debt if you're interested in this option. Keep reading to find out all about what situations warrant debt consolidation.
Who Would Need Debt Consolidation?
People Who Can't Manage Their Debt
If you're reading this, then we already know two things about you:
- You're in a fair amount of debt
- You're not very good with your finances
Don't feel bad about it, though; a large proportion of the population in the UK is struggling with debt (student loans, anyone?), and debt management is difficult enough as it is. If you have multiple loans, however, it becomes that much harder to keep track of everything. Debt consolidation can be your saving grace, as it simplifies the whole process and makes it easier for you to remember all the details and make payments affordably and consistently.
People Who Can't Afford To Repay Their Debt
One loan can be easy to manage and afford, depending on your situation and the respective interest rate. As loans multiply, however, so does your debt and the repayment instalments you owe regularly. Soon, the situation can become unmanageable, as you hadn't factored all these loans into your budget to begin with. That can lead to late payments, skipped payments, or even defaulted loans, all of which wreak havoc on your credit score.
You might not even be able to see the end of the situation, as according to The Money Charity, it takes more than 26 years to pay off the average credit card incurred debt, assuming minimal payments. That's a real wake-up call. Debt consolidation can help by allowing you to renegotiate the terms of your loan, and a lower repayment instalment, or even get a lower interest rate and reduce the total amount of your debt.
People Who Want To Improve Their Credit Score
As I mentioned just a minute ago, inconsistent loan repayment reflects very poorly on your financial responsibility and that will be visible in your credit rating. If you're looking to improve it, however, few methods are more effective than debt consolidation. This type of loan will help you to streamline all of your other loans and associated debt and enable you to take control of your finances. You will be able to make regular, consistent, and timely payments that will help boost your credit rating.
Why Is Debt Consolidation A Good Idea?
It Makes Your Life Easier
As we've been discussing so far, debt consolidation can make your life so much easier. The sheer amount of stress you get rid of makes it worth it. Think about all the time you can save if you're not running around paying loans every week, and how much easier it would be to keep track of all the details and the payments you have to make. Streamlining debt can significantly cut back on the time and effort necessary to manage your debt.
It Reduces Your Overall Interest
We all know what's the killer, when it comes to loans - the dreaded interest rate. As you will be well aware, the lender has to make a profit on lending you money, and that's where interest comes in. However, depending on the loan, the interest rate can be absolutely massive and it sometimes means that you pay twice the amount you borrowed in interest alone. A debt consolidation loan gives you the chance to actually reduce the overall interest you will be paying on the loan, which means you reduce the amount of debt you'll be paying back.
Debt Consolidation Prevents You From Missing Payments
If you're juggling multiple loans, it's very easy to get distracted and miss a payment, or simply not be able to afford it. After all, these instalments aren't cheap, and when you have multiples, sometimes you have to make some difficult choices and prioritise. Debt consolidation makes it possible for you to stop missing payments (accidentally or on purpose) - if you've only got one loan to repay, it's much more difficult to overlook a payment that's due, and it's much easier to afford, as well! Especially if you end up getting your total amount reduced, you really can't go wrong.
Are There Any Drawbacks You Should Consider?
In the interest of fairness and being 100% informed, you should know that there are some negatives you should be aware of. While debt consolidation can solve a lot of issues, it can also create more of them, if you are not careful or don't get a good deal, so look out for these possible disadvantages.
|Your Interest Rate May Increase||You May End Up Paying For A Longer Time|
|I know I said you can have your interest rate decreased - and you can - but the truth is it might as well go up. This all depends on the lender and the situation at hand, but if your interest grows, then it's better to forgo the consolidation loan.||It's true that you can reduce the amount you pay every month on your loan, but unless your loan is reduced, that means you will end up paying off the loan for a longer time. That may be a deal-breaker for some, so be aware of the possibility.|
In conclusion, debt consolidation can be a viable solution for people who are struggling with their debt and don't have the means to manage it properly. You may be asking yourself things like "how can I get the best rates for consolidating debt?" The secret is to do a lot of research and check online, as well as on the high street for the perfect lender that will offer you consolidation.