If you are in debt, it can be difficult to see a way out of it. However, help is available, and there are schemes and solutions which might assist you. Debt consolidation is a way to simplify how you manage debt, and many people have used this method to get their finances back on track.
What is debt consolidation?
Debt consolidation is when you combine at least two debts, although often more, into a single and more considerable debt.
What are the pros of debt consolidation?
Given that many people undertake debt consolidation, it is a step that benefits people. Some of the leading pros of debt consolidation are as follows.
You can pay off your debt sooner, and you pay less money in doing so
When you consolidate your debt with a loan, you have fixed payments, creating a timeline and deadlines to pay off your debt. This speeds up the process, and by paying off the debt in less time, you pay less interest, so you save money.
You simplify your finances
If you have a lot of bills and debts to pay each month, there is a strong chance you might forget or overlook one. By consolidating your debts into one, you only have one obligation to pay each month, giving you fewer things to worry over.
You can enjoy a lower rate of interest
If your existing debt includes credit card debt, there is a good chance you can enjoy a lower rate of interest by paying off a personal loan rather than a credit card debt. Paying off debt at a lower rate of interest will save you money.
You have a fixed payment schedule
Things should be easier to manage when you have order in your life. Knowing that you have a single payment date each month is a great month. However, knowing you have a fixed amount to pay each month, as opposed to dealing with fluctuating charges and bills, is also a comfort.
Knowing when and what to pay in advance allows people to arrange and manage their finances.
You can improve your credit score over time
There might be a short-term negative impact on your credit score. Still, if you successfully pay off your debt via a debt consolidation process, you will significantly improve your credit score.
What are the cons of debt consolidation?
While there are many positive reasons to consolidate bet, there are also cons to this process.
You need to make changes to how you deal with finances
Consolidating your existing debt is a great start, but if you fall into the same behaviour, you will find that your finances become challenging to manage again. It is advisable to review your spending behaviour and make positive changes alongside consolidating your debt.
There could be up-front fees
Sometimes there will be fees associated with taking out a consolidation loan and closing down your existing debts and loans. Please review the terms and conditions of all agreements before you commit to this process.
Some people might end up moving to a higher rate of interest
Hopefully you can arrange a consolidation loan at a lower interest rate than you are currently paying. However, this might not be the case. If you end up paying a higher interest rate, you need to consider if this is the right move.
If you miss a payment, your financial problems will increase
If you fail to make a payment, you will likely face a late payment fee, and there could be severe repercussions for your credit score.
How to explore your debt options with The Money Hub
If you have a number of debts, there is a lot to be said for consolidating them into one, but this isn’t the ideal solution for everyone. Thankfully, help is at hand.
Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Mortgage Advisors or you can complete an enquiry form which will allow you to schedule a call time.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.