People across the UK are swimming in credit card debt. According to the Independent, it’s expected that national credit card debt will hit almost £70 billion by the end of 2022.¹ What makes it difficult to dwindle down debt is the increasing cost of living, high interest rates, and other necessary fees. If you’re someone with a balance on multiple credit cards, debt consolidation might be helpful. You can learn about the benefits with an online search.
There are some important things to know about before getting a debt consolidation loan. Search online to find out if this financial choice is right for you.
Here’s a rundown on debt consolidation loans.
Simplify Your Finances
Those who are stuck paying off multiple credit cards each month with no end in sight may benefit from a debt consolidation loan. The loan is used to pay off your existing balances. This allows you to combine your debts into one lump sum rather than continuing to make payments for multiple credit cards.²
For instance, a person with four different credit cards can use the loan to bring all balances down to zero. From there, they only have to pay off the single debt consolidation loan. This simplifies your finances in several ways. The most important being that you no longer have to keep track of credit cards with differing statement dates or minimum payments.
Your Monthly Bills Could Be Lower
Another benefit to debt consolidation is paying less money towards your bills each month. Ideally, this type of loan should leave extra cash in your wallet each month. According to Forbes, your monthly payments may decrease if future payments are spread out over a new and extended loan term.³
Additionally, you could score a lower interest rate than what you’re currently paying for each individual credit card. Paying off a single loan with one interest rate could save you a lot of money on interest in the long term. Just make sure to look around and compare for the best interest rates available before securing a loan.
Pay Off Your Debt Sooner
Debt consolidation loans can give you a better idea of when you’ll be free of credit card debt. Unlike credit card debt, these loans come with scheduled payments and loan terms.
A timeline with fixed monthly payments gives you a clear start and finish date for the loan. This structure may help you to pay it off faster.
When to Consider Debt Consolidation
Not everyone with credit card debt is the right candidate for a debt consolidation loan. That’s why it’s important to carefully consider your finances to determine whether it’s a practical solution in paying off debt.
Firstly, the types of debt you’re able to consolidate are debts that can be paid off early. This includes:
- Credit cards;
- Loans;
- Tax arrears;
- Debt collection agency debt;
- Payday loans, and;
- Outstanding utility bills.
There are certain financial situations where it makes sense to consolidate your debt. Forbes says you should consider this type of loan if you:
- Have a large amount of debt;
- Can secure a low interest rate;
- Have a good credit score;
- Will have lower monthly payments, and;
- Have an income that can pay for the new monthly payment.
Overall, debt consolidation can be a solution to managing your debt. But keep in mind that you may be required to pay for added costs, such as balance transfer fees or closing costs. It also might not be worth it if you have a bad credit score or you’re unable to secure a low interest rate.
Only go for a debt consolidation loan if you can afford to make each scheduled payment. If you’re unable to make the payments, then your credit could take a serious hit. You’ll have to determine whether the cost to consolidate debt will ultimately save you money in the long run.
Learn More About Debt Consolidation Online
It can be tough to pay off debt when you’re dealing with high interest rates and fees. What makes it even more difficult is when there are multiple credit card balances to keep track of. If you want to simplify your finances and potentially become debt-free quicker, then a debt consolidation loan is something to look into.
Instead of juggling multiple debt payments and interest rates, you can combine them all into one single payment. Take the time to compare your options in order to secure a loan with the lowest interest rate, minimal fees, and reasonable loan term. Just make sure to speak with a financial expert and search online to find out if debt consolidation is the right decision for you.