Debt consolidation. It’s a phrase we hear all the time. It sounds great too, as if everyone with debt should be doing what it says. But is it? Should you consolidate debt? We took a look at what is involved.
The principle of debt consolidation is that if you have various debts at different interest rates, then you can in theory merge these credit lines a single low interest loan. The advantage of this is that from a cost savings perspective, you could actually save money on interest. Naturally it is better to pay 10% for example on a single debt than pay an average of 15% on numerous debts.
You convert what is often credit card debt into a single loan or credit card payment. This simplifies your life and hopefully saves you money at the same time. The latter being the most important aspect of all. It allows you to pay off your loan quicker since any money you save from the lower interest payments can be used to increase repayments.
The other clear advantage is that now you no longer have to use up valuable time managing multiple loans and/or credit cards. This also makes it less likely for you to miss payments due to your new simpler arrangement.
you may attempt to get other loans that are lower than your credit card interest rate for example. That is one option. Another is to take up the offer of a balance transfer on a credit card. for a set fee, which is often around 3% fixed fee of the amount moved, you can move debt to a credit card. You then pay no interest on that balance for the introductory offer period. A common length of time is six months. your goal then is to pay off as much of the balance as possible before the high interest rates kick in. Or alternatively move the money on again.
The key is to save money. If you consolidate debt simply for the convenience, then that is not something we would ever advise. This is because you may end up paying more in interest to do so, and surely no amount of convenience is worth that? If multiple debts do stress you out, pay off the smallest balances first. This reduces the number of lines of credit you have to deal with. If you can cope with multiple debts, you should instead pay off the debt that attracts the highest interest rates.
Comparison sites are a great place to see what is available out there. You can see the offers that both loan companies and credit card issuers are using to entice customers over to their products. Then you can sit down and work out if it is worth moving debt. If it saves you money, then the answer is yes!
But to do so you may have to first ensure your credit rating is healthy enough. Get a free report and check for any errors on there.