When you’re paying off several credit agreements at once, it can be easy to lose track of the payments you have to make every month.
You might end up missing a payment on one or paying it late, which will damage your credit history. It could also end up quite costly if you are hit with penalty charges or extra interest.
One way you could stay on top of your credit agreements is by refinancing or consolidating them into one payment. But will this be suitable for your situation? Let’s take a look at the facts.
Refinancing isn’t a common term in the UK, but if you’ve heard it used and weren’t sure what it means, it just describes taking out one form of credit to pay off another. You might decide to do this if you’ve got a loan or credit card with a high interest rate and you find you’re eligible for a loan with a lower interest rate. Taking out the new loan and using the moment to pay off your old credit agreement, and would mean that you’re making repayments at a lower rate.
As we’ve mentioned, you could also refinance if you wanted to consolidate several loan or credit cards into one monthly payment. This would mean you wouldn’t have to deal with multiple credit repayments at once, and you could find it easier to manage just one payment a month.
What to look out for
If you consolidate your credit agreements, it’s likely that you’ll be making a smaller payment each month than you were paying before you refinanced. This means you won’t have to budget as much for your repayments each month, but it also means that you’ll probably be paying it off for longer than you originally planned. You’ll have to pay back more in interest over the long-term but you might decide that this is worth it if it means you can get in control of your repayments.
It’s also important to be aware that if you’re taking out a secured debt consolidation loan, this will be secured against your home so it’s only suitable for homeowners. If you don’t keep up your repayments on your debt consolidation loan, your home could be repossessed – so it’s a good idea to seek advice if you are considering a secured loan.
With a smaller monthly payment total, you could be tempted to take out more credit so that you could afford to pay for a few luxuries, or put more onto your existing credit cards. However, if you’ve taken out a debt consolidation loan, you should avoid taking on any more credit, as this could mean you’ll start to struggle to manage the total cost of your borrowing.