Having debt can be stressful. If you don’t feel in control of your finances and have a sense that money is running away from you then it can, as the NHS recognises, have a big impact on your self-esteem and mental health.
If you’re struggling to clear your debts, you don’t need to suffer in silence. There are things you can do to get back control and start to tackle your money worries.
Many people will have seen or heard the adverts that suggest you could consolidate your debts down into one monthly repayment, but how do you know if this will work for you? Let’s examine the pros and cons of debt consolidation. But before anything, let me remind you that self-debt consolidation is the best financial decision you can make. There’s nothing external parties can do that you can’t. I have written a step-by-step process to consolidate your debt into one.
Based on whether you hire external parties to help you with your debt problem or you do on your own, there are pros and cons of consolidating your debts into a single large debt.
The pros of debt consolidation
Debt consolidation is a great way of making life a little simpler. Debts are often held in different places, each with their own payment arrangements, interest rates and end dates. As this explanation from AvantCredit shows, a debt consolidation loan packages this up as one payment, allowing you to see what you need to pay and when in one place.
By putting all of your debt together in one place you can slash the amount of interest you pay, meaning that more of your efforts are more firmly focussed on removing the debt itself and not just the interest. Not just that, there is also the chance to reduce your monthly outgoings and bringing your payments down to a level that is more manageable. By taking out a loan and paying it off in an orderly manner you can improve your credit rating.
This is a fairly common practice and that means that borrowers are able to shop around for a good deal.
The cons of debt consolidation
Debt consolidation is a great way to draw a line in the sand and help you recover financially. However, there are two things it won’t do: it won’t wipe the slate completely clean and it won’t fix the issue that got you into debt in the first place. You will still have to pay what you owe and you may still need to put in some thought into how to change your own circumstances in the long run. This isn’t the end of the process, just the start.
Watch out for the terms too. Some loans might well carry lower payments but might stretch out over a longer period, meaning that you actually pay back more in the long term.There can also be fees and charges involved and you need to account for these when assessing the full cost of a debt consolidation.
Debt consolidation done badly could also cause problems in the long run. Failing to keep up with the repayments will badly affect your credit rating.
What you need to weigh up
Everyone’s circumstances are different and it is well worth getting help and advice if you aren’t sure what to do – the Citizens Advice Bureau is an ideal port of call. Many of the cons outlined above are, in essence, problems that can occur if this is handled badly or if your circumstances aren’t quite right.
Done well, debt consolidation can be a really good way of getting back in control of your finances and heading on the path to a healthier situation. By doing your homework and research you can ensure that your consolidation is ‘done well’.
Readers, we believe that a lower interest personal loan can consolidate all your high-interest credit card debts. You will pay fewer interest charges every month and thus will pay off your debt faster. here’s a list of best personal loan providers.
Let us know your experience with debt consolidation and share what you know.