Why is Debt Consolidation Important?
Debt consolidation is an increasingly popular service; it refers to the process in which someone combines all of their existing debts, whether they be from credit cards, personal loans or payday loans, together into one, more manageable debt. This process is usually quite simple, and with so many money lenders out there, you can search for the most competitive loan that best suits your personal finance needs.
There is often the requirement that anyone looking to consolidate their debt will be expected to have a good credit score, of anywhere from 670. However, this depends on which credit score agency calculates the score. In the UK, the biggest three are Experian, Equifax and TransUnion, so it’s important to be mindful of this before applying. Experian is the biggest agency in the UK and offers free credit checks for anyone who signs up for their free trial month.
Why Should I Consolidate My Debt?
Many people might consider debt consolidation due to the wide variety of lenders that exist which results in a complex repayment system that is not easily managed month-to-month. With more than half of the UK’s adult population who live in big towns having debt, there’s no wonder why debt consolidation is desirable. The main purpose of debt consolidation is that people can have just one lone debt to repay, making the monthly repayment system much more manageable.
The Advantages of Debt Consolidation
If you’ve got multiple debts and are considering rolling them all into one through debt consolidation, some major benefits can occur. Here are our top 3 reasons to consolidate your debt:
Lower Interest Rates: Credit card interest stands at roughly 22%, whereas a personal loan is about 11%, in the UK. These rates are only averages and will vary depending on each lender, however, if sourced properly this could mean that consolidating with a personal loan could save you money on interest.
Manageable Repayment Plans: Consolidating debt will create a more manageable repayment plan for consumers, resulting in just one monthly payment- rather than paying multiple different lenders at once. This payment will also be the same month-to-month, ensuring that there are no surprises and lowering the chance of missing a payment date.
Boost Your Credit Score: In time, through demonstrating good credit behaviour and through paying off your debts, you will be able to work towards improving and increasing your credit score. Although it may be tough when you have a bad credit score, consistently and continuoustly paying off what you owe on time can greatly help your creditworthiness, in turn helping your chances of getting a loan or credit when you need it.
The Disadvantages of Debt Consolidation
As you’ll be getting a brand new loan, it’s important to do your research beforehand or get advice from a financial professional. These loans can also be riddled with tricky terms and conditions and high-interest rates. Debt consolidation is only beneficial if the new loan has lower interest rates when compared to the current loans. Here is a list of the top 3 things to consider before debt consolidation:
How Can I Consolidate My Debt?
Taking control of your finances is made easier through debt consolidation, whether it be for outstanding credit card debt or educational loans! There are many different ways to consolidate your debt, but here is a list of popular ways to consider:
Personal Loan: You can consider getting a personal loan, often called a debt consolidation loan, which will merge all of your active debts into one debt. There are many companies that offer this service, just be sure to find one that has the best terms and conditions to suit your financial situation.
Second Mortgage: Using the equity in your existing home to borrow from £10,000 to £2,500,000 with some companies, such as The Second Mortgage Company. Not commonly known as an option for debt consolidation, however, many lenders offer personal loans for debt consolidation - alongside to cover school fees or weddings.
Refinance: Refinancing through a balance transfer credit card could mean that all of your debts are in one place. There is the added benefit that many competitive lenders are willing to give the consumer a large interest-free period, which can be highly beneficial to someone who knows that they can repay the amount within that period.
Borrow From Friends or Family: Excepting a loan from your friends or family is a great way to consolidate your debt as you’re accepting money from someone you trust and if they’re kind, without interest! You should take this offer seriously as if you’ve taken a loan from a private lender, to ensure you’re repayment scheme is followed through.