Debt Consolidation

Keeping up with your debts isn't always easy. The more debts you have, the harder it is to keep track of how much you're paying, who you're paying it to and when you need to pay it.

Simplifying your finances

A debt consolidation loan could simplify your finances by letting you repay all your debts in one go, leaving you making a single monthly payment to a single lender.

• You'd be less likely to make your payments late - or forget them altogether - which means you'd be less likely to be fined or damage your credit rating (something which can really add to the cost of getting credit in the future).
• And since you'd be making just one payment per month, you'd find budgeting a lot easier, as you'd know exactly how much money to set aside for it.
• You'd also save yourself the hassle that goes with making multiple payments, checking statements, and figuring out how much debt is left, how long it'll take you to clear it, and so on.

Reducing your monthly costs

Debt consolidation gives you a valuable opportunity to reassess your situation and really plan your finances.

Most people don't really think through all the consequences when they're using credit cards, store cards and other 'easy' forms of credit. It's easy to use them, and it's easy to borrow another £20, £50, £100. Before you know it, you're carrying a multi-thousand-pound debt, and spending hundreds every month just making the minimum repayments.

Debt consolidation is a chance to 'start over' with a single larger debt, rather than multiple smaller debts.

This time, when you arrange your repayment terms, you'll already know how much you can comfortably afford to pay every month without taking up every penny of your available income.

A note about debt consolidation

If you're thinking about debt consolidation, it's important to recognise that repaying any debt more slowly will delay the day you're debt free.

And unless the interest rate on your debt consolidation loan is significantly lower than on your previous debts, you might end up paying more in interest overall, as your interest will have more time to grow.

Having said that, most people who consolidate their debts figure that's a price worth paying if it means they can bring their monthly payments down to an affordable level.

How quickly should I repay?

If your repayment period is:

• Too long, you'll pay less each month - but you'll pay more than you need to in interest.
• Too short, you'll pay less in interest - but your monthly payments might be uncomfortably high.

In most cases, the best way forward is based on a compromise - basically, you need to arrange a repayment period which is as short as possible, but which you're sure you'll be able to keep up with.

 

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