If you have multiple debts to different lenders and are finding it difficult to keep on top of repayments, then you may benefit from consolidation. There are a few different ways to do this, so it’s essential to do your research and understand the benefits and disadvantages of each option before deciding on a particular route. If consolidating your debt will help you to manage your money more effectively and move you in the right direction financially, then it may be right for you.
Here, we explore three different ways to consolidate debt and how they work.
Consolidate multiple debts into one loan
Do you owe money to lots of different lenders? Then it may be worth consolidating all your debts into one single loan. The benefit of this is that it often means your total monthly repayment is less than if you pay each debt to each lender separately. However, you may find that some loans have a longer repayment term – which could result in paying more interest overall. So, pay close attention to this when looking at various options from banks or credit unions. It’s important to note that debt consolidation loans aren’t right for everyone, so speak to a professional and weigh up the pros and cons before taking one out.
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Borrow money from insurance policies or retirement funds
You may be able to borrow money from your retirement fund or life insurance policy – depending on the terms and conditions. Releasing funds is usually done by taking out a loan against the total amount in your account. Of course, this will take money out of your retirement pot which could be detrimental later down the line, so this should only be considered if other types of debt consolidation aren’t viable. If this is the right route for you, ensure you can make further contributions to your pension or life insurance policy in future to top it back up.
Do a credit card balance transfer
A credit card balance transfer essentially works by moving debts from other credit cards or store cards onto one card. The main reason to do this is to take advantage of significantly lower interest rates, which can be as low as 0%. This means that you can clear your existing debts much faster as the money you’re repaying is used to clear what you owe rather than pay interest. Typically, you’ll be charged to take out a balance transfer card, so you should pick one with the lowest fee. And always make sure you can keep up with monthly repayments and that you can repay the total in full before the low interest rate finishes.
The key to choosing the right debt consolidation method for you is to make sure that you can comfortably manage the monthly repayments and ensure it will improve your financial situation in the long term. Always seek advice from a professional before going ahead so that you have all the details you need to make an informed decision.