Rather than paying multiple debts across several different accounts, you can roll everything into a single debt, which can be paid monthly instead. You can do this in several ways, and while it’s only possible to achieve this if you have a good credit score and you get approval, debt consolidation could be the answer for you if you’re feeling stressed about your spiraling debt.
Read on to learn more.
What is debt consolidation?
Debt consolidation is when you roll all your combined debts (credit cards or loans) into one simple, single loan with a lower monthly payment and a lower interest rate. But with so many methods available, what is the best way to consolidate your debts?
Who can apply for a debt consolidation loan?
Anyone with a fair or average credit rating can apply for a debt consolidation loan.
Pros and Cons of Debt Consolidation Loans
PROS:
- A lower fixed interest rate for the duration of the loan (leading to interest savings).
- More flexibility regarding the loan amount and term length (suited to your personal situation).
CONS:
- New consolidation loan applications involve hard credit checks – too many can damage your credit score.
- You start to accrue interest immediately (no interest-free grace period).
- You could face an administration or setup fee.
- It’s another long-term financial commitment.
- If you fall behind or default on payments, you could face penalties or legal action.
Note: Read the terms and conditions carefully to ensure debt consolidation is the right move for you.
Debt consolidation: The benefits
- Simplifies your payment schedule: it gives you one easy monthly payment to budget, rather than stressing about different due dates, amounts, and interest rates for various cards.
- Qualifies for a lower interest rate: saving you money and preventing your debt from snowballing.
- Spreads out your repayments: consolidation can free up cash flow in the short term. However, extending the repayment term means paying more in interest over time.
What about zero-percent balance transfer credit cards?
We often hear clients mention these. While they might sound fantastic, they can add extra pressure to a tight budget. Here’s how they work:
- You apply for a new balance transfer credit card.
- You merge your existing card balances into the new account.
- You fall in love with the balance transfer card’s introductory 0% promotional interest rate for a limited period, typically 12-24 months.
- You then make repayments during the 0% interest period before higher rates resume.
- You start to fall behind when the interest rates kick in.
Most balance transfer cards charge a one-time fee, and while balance transfer cards provide a quick and simple way to consolidate credit card debt without closing existing accounts or taking out a loan, you must be diligent and stick to your repayments. Otherwise, your debt may begin to snowball quickly.
What about a personal loan?
By taking out a new personal loan large enough to cover your existing credit card balances (and any other debts), you can effectively manage your debt and end up with only one loan to manage; just make sure you also take out loan protection insurance.
Personal loans at a glance:
- Make the repayments until the loan is paid off (typically 2-5 years).
- Can create a sustainable budget.
- Possibly access a lower interest rate on a consolidation loan.
- Your credit score and income will affect your loan specifications.
- Loan insurance might be an excellent option for you.
Debt management plans
A Debt Management Plan (DMP) is an informal agreement between you and your creditors regarding paying back your debts. Often, it results in you paying back the debt by one set monthly payment divided between your creditors.
Most DMPs are managed by a professional provider who communicates with your creditors for you. This means you don’t need to deal with your creditors yourself. One of the biggest benefits of a DMP is that it isn’t legally binding, meaning you can cancel it at any time.
What if I use my savings to pay off my debt?
If you are lucky enough to have a lump sum in savings you can use to pay off your debt, you might be considering whether to use them.
This could be an option, but there are risks you should consider. You could end up with no money for emergencies.
Avoid accruing more debt
While consolidating your credit cards can feel like a “fresh start”, it takes patience and commitment to avoid falling into a familiar trap.
You could be forced to rely on credit or take out additional loans if you fail to properly manage your finances after consolidating, and you end up even worse off than before, as you’d have multiple payments to manage each month.
Set up a strict monthly budget and track your spending to ensure you prioritise your necessary expenses and savings after transferring balances away or paying off cards with a loan.
Hide or cut up your credit cards or delete your accounts with online retailers to help remove the temptation to overspend.
Take control of your finances and take that first step towards financial security by pairing the benefits of consolidation with cautious, intentional spending habits.
Talk to a professional debt advisor to help you determine the best way forward.
Debt consolidation with Yes Loans
Using a personal loan to consolidate debt brings instant debt relief for anyone with multiple credit agreements who wants to combine the debts into one simple payment plan or save money.
Loan refinancing is typically done where someone owes the creditor a final balloon or residual amount. The new loan helps you avoid the massive payment, splitting it into smaller repayments over a longer time. Debt refinancing can be an effective debt management tool when done correctly.
Contact Us
Don’t lose yourself to debt. Feel like you again have more control over your debt with a personal loan from Yes Loans. Our solutions include loan protection options to protect you against the unexpected and we also offer car insurance options, too.
Apply now or contact us today.