Debt consolidation combines all of your debts into one single loan
The perfect tool to make your life and finances easier. Improve your credit score and get the financial freedom you need with a debt consolidation loan. You only need to make one repayment and you do not have to keep track of different loans. This is an excellent way of managing your money better and being on top of things.
Managing your debt is important
Debt can often go out of hand, especially when you have one loan creditor pilling after another, with no way of repaying it back in time. Uncontrolled debt is dangerous and has serious consequences.
There are various reasons identified for increasing debt. When you apply for a short term loan, you are faced with high-interest rates and your repayment term is short.
This leads to some people being unable to pay back the loan and taking out another one to clear it. Similarly, some people take out multiple loans to clear other debts and before they know it, they are sitting waist-deep in trouble.
Others have uncontrolled expenditures and spending. With no budgeting in place and a bad habit of buying luxury goods – one can easily spiral down into debt.
Overspending money and not saving enough makes it difficult to repay the loan and you are compelled to apply for further loans. This leads to a burden of numerous unpaid debt sitting on your shoulders.
A debt consolidation loan can help you
Debt consolidation helps you organise your finances better. It is an ideal tool for those who have multiple debts that need to be repaid. You basically place all your small loans into one big loan.
This helps you keep better track of your repayments and your cashflow. You are less likely to miss any payment as it would have been with multiple loans. You do not have to keep up with numerous creditors as you only owe one after debt consolidation.
As you now pay off a bigger loan, your repayment term increases. This might bring benefits to those who can afford the longer-term better, as compared to a shorter term.
Improve your credit report...
Another noteworthy benefit is the impact of debt consolidation on your credit report. With all of your small debts now joined in one, these little loans are cleared from your credit history, improving your credit rating. This is one of the reasons why debt consolidation is highly recommended for people with bad credit.
However, there are some important factors that need to be considered. By opting for debt consolidation, you are trading many small loans with one bigger loan. Additional costs and fees are involved in the process, and you must be sure that you can afford these.
One way of lowering the interest rate is by putting an asset as collateral or security. However, this is not recommended, as failure to repay the loan leads you to lose your asset to the lender. Secured loans are simply more affordable.
Are you unsure of debt consolidation?
If you are unsure about whether you should consolidate your debt or what plan of action to follow, you can ask for help. In the UK, there are organizations that provide the Debt Management Plan, a service that can often be found free of costs. The plan is provided by experts in the field who aid you in taking the next step.
Sometimes you can negotiate with creditors to lower your repayments. Other times, some creditors can be asked to freeze your interest; meaning that you stop paying interest on your repayments for a time period when it is unaffordable.
If DMP cannot work for you, you can also opt for IVA (Individual Voluntary Arrangement), whereby the creditors are pulled off your back. They can no longer contact or harass you in any way. This is suitable for those under a great deal of pressure.
Lastly, another alternative is DRO (Debt Relief Order), which is suitable for people who have to repay loans but have no assets or possessions that can help them in any way.
All in all, it is highly recommended to take control of your finances and avoid taking multiple loans. However, if you do have numerous debts, then debt consolidation is the best option to manage them.