Anyone that has felt the debts creeping up had probably looked into debt consolidation; even if they didn’t know that was what they were doing when they were looking around for loans. Before we get into this article it is probably a good idea to define what debt consolidation is and what it isn’t.
Loan.co.uk has produced this video on what consolidating debt actually entails. It’s not debt management or debt settlement. It is a process whereby you find the best personal loan for your situation in order to consolidate all of your debt into an easy monthly repayment.
Essentially all you’re doing is you are moving all of your credit card and loan debt into a different repayment vehicle. In so doing you reduce the amount of interest you pay and therefore minimise your monthly payments and the amount you pay over the course of paying off your debt.
So how much could you save?
The amount you could save really depends on the interest rates you’re currently paying and how much debt you are in. If you have several credit cards with £10000 limits and are just paying off the monthly minimum payment then it’s important to realise that you aren’t actually paying off credit card debt. All you’re doing is treading water and throwing away money every month. Although that is perhaps a solution in the short term, maybe for a month or two if cash flow is an issue, it shouldn’t be a long term financial management plan.
Interest on credit cards is high. They are designed for short term borrowing rather than long term. Even the most expensive loans tend to be cheaper than credit card interest rates. It is possible to save £100s a month and thousands of pounds over the course of your debt repayments if you do consolidate into a loan.
Is it always a good idea to consolidate?
Many people believe that consolidation really just entails robbing Peter to pay Paul and feel you are just moving your debt around. If you have particularly onerous redemption penalties on loans then sometimes it is impossible to consolidate debt and save money. However, in most scenarios you can pay off the loan you owe and therefore cease the interest you are paying on that loan with immediate effect. You can then begin paying loan interest rates in your new consolidation loan and begin saving.
It is so easy to get into debt, but it can be much harder to get out of it. With a debt consolidation loan you are disciplined to pay your monthly payments and pay off the amount you owe. It means you have a specific future date where you will become debt free. Imagine how liberating that will be. When looking at consolidation loans it important to shop around. Find a company that has a knowledgeable broker and can source from a wide panel of lenders. There are also independent financial advisers that may be able to help you source from the whole of market. Be careful with your applications because you don’t want lots of application footprints on your credit report, as that can an damage your ability to obtain credit. Working with a single company can help you to mitigate against this and ensure that only soft credit checks are done in the initial fact finding phase.