Why a debt consolidation loan might work for you
Cool, calm, collected
Why a debt consolidation loan might work for you…
Managing multiple debts along with weekly and monthly bills can be a lot like trying to herd cats. Just when you think you’ve got them all sorted and marching in the right direction the smallest lapse in focus causes one or two to go completely out of control.
When it comes to loans, sometimes bigger really is better. Small amounts borrowed for hire purchases, payday loans or credit cards may seem harmless. But put them together and they quickly add up to an over-priced and over-complicated headache. Anyone wanting to keep themselves out of financial trouble should at least consider a single payment option in the form of a debt consolidation loan instead of the hassle of multiple small loans.
Keeping out of trouble
Known as a downward debt spiral, losing control of your finances happens when fees and interest repayments on multiple small loans and borrowings become too much to manage and credit card management goes out the window. The combination of numerous repayments coming out at various times throughout the month (and the penalty fees that come with them if you miss a payment) can quickly spiral out of control.
While we hear plenty about the stress a large mortgage can bring, it is often the combination of many small repayments that cause the biggest headache. And in many cases it is having too many high-interest loans that result in a financial mess that isn’t easy to tidy up.
The problem with multiple small loans
A hire purchase here, an Afterpay buy there. Then it’s a quick cash loan to help you get through or an extra credit card to help pay for Christmas presents. It may seem harmless enough. But, with high interest rates, hefty fees and penalties, these types of loans can be damaging
When you have many small loans, it is difficult to manage repayments in a timely manner. We often find the downward spiral begins not with a bad credit rating but with losing the ability to keep track of all the payments. That’s why the solution is to simplify things and consolidate the debt into one loan.
How a debt consolidation loan works
A debt consolidation loan is a smart option if you need to solve the issue of multiple payment drama. It’s a way of removing all the high-interest, small loans and turning them into one loan at a lower interest rate. It is also one of the best ways to pay back credit card debt.
Let’s be clear here, the aim is to get out of debt faster, so your objective with a debt consolidation loan is to get a better interest rate than what you currently have.
Like any borrowing, you’ll need to go through a personal loan application process and meet lending criteria. But once you have been through the process you can look forward to a simpler financial situation.
The benefits of a debt consolidation loan
For most, the benefit of consolidating multiple loans into one is the ability to get rid of those painful smaller loans that come with eye-watering interest rates. A good tip to begin with is to do your research on interest rates. There is no point moving if you aren’t able to get a loan with better terms and better rates.
What’s the risk if I don’t consolidate?
There are many benefits that come with taking out a debt consolidation loan. But what happens if you don’t do anything and continue with multiple small loans?
(Credit) death by a thousand cuts. Unless you are super vigilant it’s easy to get caught out. Perhaps you haven’t checked the balance in your account and you don’t realise there are no available funds to cover an automatic payment. And then imagine this happening three, four or five times over. A consolidation loan brings you down to just one repayment schedule to manage, which is a lot easier and a lot less painful.
Less interest, less stress. Renegotiating and repackaging all of your debt into one loan should mean paying less interest overall. Regardless of what you do, it is good practice to assess all loans regularly. In the process you may find that some of your loans have reasonable interest rates and you can leave them as-is. But on the whole, one larger loan will give access to a better rate than those found on smaller borrowings like Afterpay.
The depression of debt. The effect of money stress goes beyond keeping the bank or borrowers happy. There is a well-researched link between financial strain and strain on personal relationships. Research by the Commission for Financial Capability (CFFC) recently revealed startling figures stating that financial disagreements and strain in the relationship affect 24% of 18-34-year-olds. A steady stream of small payments coming out is not going to help anybody.
How to decide if this type of loan is right for you
Are you serious about switching to a debt consolidation loan? There are a few factors that will be taken into consideration as part of your loan application. A loan application covers your income, your ability to pay the loan and your credit rating. There are options for those who can’t put down a deposit with zero-deposit loans secured against an asset.
Every situation is unique, so it’s good to talk to a financial expert or seek advice from a third party when considering a debt consolidation loan. After all, the goal should be to make life better, not sink you further into debt.
There are few things tougher in life than dealing with serious financial challenges multiple times a month. A simplified, manageable loan is how you can take back your life and take control of your finances. After all, what price can you put on a stress-free life?
If you want to talk to us about applying for a loan, please call us on 0800 200 275 or apply online.
This is not legal advice.
Ash is a professional content writer with extensive experience in business development in the financial services. Ash has founded businesses from the age of 19, including franchising ventures, and working alongside some of the largest retailers in the world.