Debt consolidation is one of the many ways a finance broker can help get your finances back on track. If you’ve got multiple monthly repayments, it makes sense to consolidate those into one easy payment. Here’s why you should consider consolidating your debt.
What is debt consolidation?
Debt consolidation is the process of taking multiple debts, such as credit cards and personal loans and combining them into one larger but more manageable loan. The idea is that while you still owe the same total amount of debt, it’s much easier to make one single monthly repayment rather than several. You can also save money on interest because you’re only paying one loan which often has a lower interest rate than credit cards.
Debt consolidation is a popular exercise at many stages of life. Whether you’ve not managed your finances particularly well and find yourself with multiple debts, or perhaps you’re buying a home and see a great opportunity to consolidate your expenses. While you can consolidate your debts on your own, many people find it beneficial to speak to a broker, as they can often find consolidation loans with more favourable interest rates and conditions.
Who should consider consolidating debt
As we mentioned, debt consolidation can occur at any stage of life. Perhaps the most common reason for debt consolidation is simply that your expenses are getting out of control. For example, you took out a personal loan for a holiday just out of University, then another for a car. In the following years, you’ve used credit cards and not managed to pay them off each month. After a while, these expenses add u and you might have 4 or 5 different loans you’re paying every month. Not only is it annoying to manage, but you’re also paying a lot of interest.
Debt consolidation isn’t just for people struggling with money though. People buying an investment property might consider debt consolidation to ensure they’re only paying one mortgage rather than two. Businesses may need some urgent cash flow, but also have some other debts to pay, so it’s an opportunity to take out a new loan for a cash injection while consolidating other debts into one easy payment.
The benefits of debt consolidation
The benefits of debt consolidation are pretty simple. Your finances become easier to manage, and you save yourself plenty of interest.
If you’ve got direct debits set up for a number of personal loans or credit card repayments, you likely need to have money in your account at various stages of the month. If you don’t, you’ll be hit with dishonour fees. It’s just a nightmare to manage. One consolidated loan means one payment each month, which is so much easier.
In regard to interest, remember that you still owe the same total. However, credit card interest is often charged at an extremely high rate. In fact, some are so high that you can be making monthly repayments but paying very little off the principal amount owed. By moving your debts to one loan with a lower interest rate, you can make much faster progress in paying it down.
You can also protect your credit history if you’re disciplined. You won’t have multiple debts that come with the potential for multiple credit defaults.
The risks of debt consolidation
Debt consolidation isn’t without its risks. The main one is about your willpower to get your finances back on track. If you’ve rolled three credit cards and a personal loan into one consolidation loan, that’s terrific. But it also creates a temptation to get another credit card or loan if you need quick money. Ultimately, this puts you in an even worse position than you were in before. If you’re disciplined, debt consolidation is great.
How BrokerCo can help you
If you’d like to explore your options for debt consolidation, we’d love to hear from you. With BrokerCo’s Debt Wrap service, we carefully analyse your income and expenditure. This includes existing loans, credit cards and other financial obligations. By combining your debts into one easy to manage loan, you’ll only be making one payment each month. It’s so much easier to manage repayments and track your progress. Contact BrokerCo today for a free, no-obligation discussion about your financial needs.