What is debt consolidation?

4 January 2017

What is debt consolidation?

debt consolidation personal loans

If you’re in a position where managing your existing debt has become difficult, you may be ready for debt consolidation.

Debt consolidation is when you bring all your debt together into one place. The aim is to move from coping to paying off. Debt consolidation makes it easy to see exactly how much you owe and what you need to pay.

Why consolidate your debt?

If your debt levels have crept up on you, you may be suffering from a variety of problems.

High interest rates

The interest levels on your debt could be high. Short term debt solutions such as credit cards are not designed for long term borrowing. The result is that you can find yourself with high interest charges as your borrowing increases and you are unable to pay off your balance in full every month.

High monthly payments

Managing debt across different accounts can lead to an accumulation in monthly payment requirements. What can appear to be a small amount on a single credit card account can add up to a significant total if taken across 2 or 3 accounts or more.

Failing to meet monthly payments can lead to penalty payments or even increases in interest charges. It’s easy to feel that debt is getting out of control when you are struggling to keep on top of multiple accounts.

Confusing to manage?

If you are managing different payment dates, amounts and requirements, it can be challenging to stay on top of exactly what is due when. You may find yourself looking for a solution that makes managing your debt simpler.

How can debt consolidation help?

Single monthly bill

Bringing your debt into a single personal loan means you have visibility of exactly how much you need to pay every month. You can set your repayment level to meet your budget.

Your repayments will not only be covering the cost of your debt, but also paying back the principal. That means you’ll have very clear visibility of when you will finish paying the loan and be rid of the debt.

Fixed payments and interest rate

When managing a range of debts it can be challenging to understand current interest rates and variable payment amounts. With a personal loan for debt consolidation your interest rate is fixed, and so are your payments. That means you can plan your finances more effectively without surprises that make it difficult to manage your debt.

Regular payment date

Repayment dates that vary can add to the challenge of understanding what you need to pay and when. With a personal loan your payment is due at the same time every month. Because it’s regular and always for the same amount, it’s easy to set up a direct debit. That means you can meet your financial commitments without even having to think about it.

No surprises

When you consolidate your debt you move from a position of juggling multiple commitments to one where you know there will be no surprises. Your personal loan agreement will set out everything you need to know upfront so there are no sudden changes in payment amounts and the stress of managing your debt is removed.

A personal loan for debt consolidation

Consolidating your debt into a personal loan provides a structured solution. You can not only remove the complexity and cost of managing multiple debts, you can also move yourself into a position where your debt is structured to be paid off.

Review your position

If you choose to consolidate your debt, it is important to take stock of your financial position. It’s easy to form bad habits that lead to debt accumulating on credit cards and in overdrafts. These facilities provide easy access to cash but can be difficult to keep under control.

Having consolidated your debt into a personal loan, it’s important to think about how you will use the facilities that allowed your debt to grow. It may be a good idea to reduce the available balance on your credit card, or consider cancelling your overdraft facility.

A personal loan provides a simple way to manage and pay off your existing debt. Bringing your debt together into one place means you have full visibility of exactly what you owe. Structured payments make it easier to manage your debt and repay it, so you can look forward to a time when your loan is paid off in full.

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Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure the content is correct, the information provided is subject to continuous change. Please use your discretion and seek independent guidance before making any decisions based on the information provided in this article.

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