What exactly is debt consolidation?
Debt consolidation does exactly what it says it’ll do - consolidate (or combine) all your different debts into one single, larger one. This can be done by taking out a new loan to pay off all your debts. By merging together all your debts, it will be easier for you to manage to pay them all off.
A balance transfer is one method of debt consolidation, where you combine your outstanding debts from one or more credit cards into a single one. The only difference is that a balance transfer is only for credit card debt, whereas debt consolidation applies to everything.
But, don’t mistake debt settlement with debt consolidation, they’re two very different things!
Why should I consolidate my debt?It sounds contradictory, doesn’t it? Paying off debt with essentially, more debt. But hold that thought! There are two main reasons why you might want to consider this:
1) You can cut costs by saving on interest.High-interest rates are one of the top reasons why people find it hard to settle their monthly repayments. By consolidating their debt, the interest rate is generally lowered, reducing the overall amount of the monthly repayments.
However, make sure to do your calculations right to ensure you really will be saving money.
2) It’s an easier way to manage all your debt.With so many different debts, each with different interest rates and deadlines, it can be tough to keep track of all of them and make sure you’re paying them all on time. Debt consolidation combines all your different debts into one, helping you manage them easier.
But keep these in mind!
1) Debt consolidation will not magically settle your debt for you.As with all methods of settling your debt, your spending habits are the key to breaking free from a mountain of debt. Before considering debt consolidation, make sure you’re ready to curb your credit spending. If not, there’s really no point.
2) Only unsecured loans are allowed for most plans.Unsecured loans are loans which are not tied to any collateral. Some examples are student loans, medical bills and credit cards. This also means that your credit score should be relatively good to be able to apply for this.
How to go about doing it?Before deciding, make sure to do the math! Calculate all your monthly repayments for each debt and add it up. Then, find out the monthly repayment rate from your chosen bank and see if you really will be saving on costs.
You never know, the interest rate (if you were to consolidate your debt) might even be higher than what you’re paying now. After that, it’s just a matter of finding your ideal personal loan!
In a nutshell, say bye-bye to bad spending habits, do the math and start comparing to find your ideal plan!