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Why debt consolidation isn’t just for people worried about debt
When you hear the words “debt consolidation”, you might think up images of people struggling under mountains of debt.
But, the reality is, you don’t have to be worried about piling debts to consider a debt consolidation loan, as it can be a good way to make your finances easier to manage and maybe even reduce how much you pay each month.
What is debt consolidation?
Consolidating your debts means taking out a loan to pay off multiple other debts. This might be appealing to you as it reduces the number of different outgoings you have at the end of the month, which can make your finances easier to manage.
Rather than making many payments to different lenders, you just make one payment to one lender, which makes things simpler.
Make your money more manageable
If you’re juggling a lot of different debts, a debt consolidation loan allows you to get a tighter grip on your finances. It’s easy to lose track of how much you’re paying on each credit card or loan if you have more than one, so condensing it down to just one payment can help you manage things better.
With many different payments due to come out each month, it’s possible that you may forget to make one of them, which could damage your credit history.
Not only this, but getting lots of statements through for all of your credit cards can make it difficult to keep track of everything, which means you might not notice if payments have been made that you don’t recognise, or that you have overspent on one month.
Your credit history may have improved
If you took your credit cards out a while ago, and you’ve made all your payments on time, your credit history should have improved – as long as you haven’t missed any other payments elsewhere.
This means you may be able to take out a loan with a better rate than what you are paying on your credit cards or loans now. If you can get a loan with a cheaper rate, this means you could save cash at the same time as simplifying your monthly outgoings.
It’s a good idea to check your credit history if you haven’t already. You can do so for free using ClearScore or Noddle.
Taking advantage of 0% balance transfer credit cards
It’s not only a loan that can be used to consolidate debts, and some people who have good credit histories may use balance transfer credit cards to consolidate their other credit card debts.
Balance transfer cards work by allowing you to move all your other credit card balances to one credit card, which means you have fewer outgoings. This is often done when the balance transfer card offers a cheaper interest rate, with some even offering 0% for a specific amount of time. If you have a good credit history, you may be able to get a 0% balance transfer credit card, which means you won’t pay any interest on the balance once it’s moved over.
However, these cards do usually charge a one-off fee, which is normally a percentage of the balance. You may end up paying this for each balance you move over, so it’s worth getting out a calculator to see if paying this fee is cheaper than continuing to pay the interest rate on your current credit cards.