There are fewer worse feelings than the sense of being out of control of your finances. Yet many people in the UK have money on their mind in a way that is negative. Citizens Advice highlighted that about 40 per cent of people are regularly left worried about whether they will be able to afford the essentials – food, rent, bills, etc – at the end of each week or month. It also found that even a quarter of those earning more than £70,000 a year regularly think about their debts.
Debt can easily spiral out of control, with interest payments sucking the life out of your pay packet and leaving you little or no disposable income. But, what if you’re already there?
If you find yourself in a regular state of panic about your finances and can’t see how things will improve then you might need to consider a consolidation loan.
What is a consolidation loan?
This is particularly good for people with multiple debts. Some people find themselves in a situation where they have credit cards, store cards, loans and other debts, and they are stuck in a state of confusion. Each of these debts is likely to have its own monthly payment date and amount, a specific interest rate and its own ‘end date’. Just finding these out and writing them down can give you a headache. A consolidation loan can be taken out to pay off all of your individual debts, leaving you just this one loan to pay in their place.
What benefits will I get?
Avant Credit offers a useful illustration of how this can be beneficial. It shows how you can track your payment date and amount, interest rate and that all-important end date on the one screen giving you an at-a-glance view of your finances. Straight away this gives you a level of control that you didn’t have before and should ease some of the worry to be had from being in a chaotic situation.
You can also, as USwitch states, reduce your overall monthly repayments and cut the total amount of interest you have to pay. By paying off your debt in a managed way, you’ll not only put yourself on the path to being in the black but you should also work towards improving your credit rating.
What should I be careful of?
You shouldn’t see a consolidation loan as the end of the line. This is about setting off in the right direction. You will still have to pay off your debts before you reach your destination.
Loans of this nature can result in you increasing the length of your debt repayments and, in time, you may even pay more. If this is the case you need to weigh up whether or not this is a price worth paying for the simplicity you will gain and the fact that you are likely to cut the amount you have to pay out each month.
Also, it’s important to consider your other options first. If you have a couple of small debts that could be cleared, it is well worth paying these off first to see if that gives you some extra breathing space.