What is Debt Consolidation and Should I Consolidate?

Should You Consolidate Debt Consolidation?


Having to pay off more than a single debt at a time isn’t uncommon. But for those of you who are struggling to achieve your debt repayments, perhaps debt consolidation may help. We have a dedicated debt management team that has a proven track record of helping people get their finances in order.

The idea behind this is that you bring together all of your existing debts into one, new debt. Doing so can help you manage repayments while also giving you a better view of your financial future. Debt consolidation is normally done by getting a new personal loan which will be used to repay existing debts.


Let’s find out more about how it works.


How Does Debt Consolidation Work?


Let’s say for example that you have three different cards with varying debts. Your situation here would most likely mean that you have to deal with three different interest rates as well. On top of that, you also have to repay them at separate times in a month.


Managing this type of cash flow can be quite overwhelming and complicated. You may also find that your interest rate in one card is significantly higher compared to the others. In the end, you might be paying a lot more each month just to cover the interest, besides having to pay for the debt itself.


One way you can consolidate debts is by signing up for a personal loan. This loan is going to pay for each of your credit card debts and their following interest rates. With a single personal loan, you only have to worry about one repayment. You can sometimes choose how frequent you want to repay – weekly, fortnightly or monthly.


If your personal loan’s interest rate is lower compared to the credit card rates – and this is often the case – you can get ahead in reducing financial debt overall.


Reasons to Consolidate Debt


When consolidating debt with a personal loan, you’ll get a lump sum cash loan which you can then use to pay off your existing debts. Once you’re done with that, all you have to do now is to repay the personal loan itself.


Here are several reasons why you should choose to consolidate your loans today.


You Can Pay Off Your Debt for Good


When utilised in debt consolidation, a personal loan can be that stepping stone to get you out of debt – and for good! This works if you:


  • Ensure that you base the monthly payment you can afford on your budget
  • Avoid using credit cards and other debts that can accumulate once you’ve repaid all of the balances in your personal loan


Once you’ve paid your loan – and if you haven’t collected any other debts – then you’re good to go!


You Know How Much You Owe Each Month


Since a personal loan is based on instalments, you get to pay it back in equal portions over time. Its fees and interest are included in the monthly repayment, which unlike credit card debt, will have the same amount each month. Being able to know how much you owe beforehand can help take the guesswork out on your budgeting. It also sets you up so you can plan and save for your personal loan payments easily.


You Only Have to Pay for a Single Loan


If you want to get organised with regards to handling multiple payments and debts, debt consolidation via a personal loan is a good start. By doing so, you don’t have to worry about juggling several debts as mentioned earlier. You only get to focus on paying back one loan and on a specified date each week, fortnight or month.


You Get to Pay Loans at a Fixed Rate


The great thing about personal loans is that you get charged at a fixed interest rate. This means that you won’t get caught off guard by any immediate rate changes such as with credit cards. Consolidating all of your variable-rate debts with one personal loan lets you get rid of all those problems.


You Can Rebuild Your Credit Score


When using a personal loan to repay your credit card debt, this can help lower your credit utilisation rate. The utilisation rate is the amount of your overall credit limit that you are consuming and is the second key factor that determines your credit score.


Since a personal loan is repaid in equal amounts and on a fixed schedule, you can budget all of your future payments for it. Once you’ve established a pattern of paying on time, you can contribute positively towards your credit score.


You Get Your Money Immediately


Majority of lenders will let you apply for a personal loan, no matter your credit score. The process of being approved and knowing what the terms are is fast. If you accept their proposal, you can find your funds within your account in a few days. This speed can be very useful especially if you need money right now to get something started.


We are here to help if you have a feeling that your finances are getting away from you or you want to roll a few loans into one more centralized loan we can help you. Contact our team of professional brokers and let Yes Loans help you get back on track.