If you’re struggling to make ends meet despite your most frugal efforts, your existing debts might be spiralling and you may not even know it. With so many debts out there, it can be hard to keep track of exactly how much you owe, who you owe it to, and how much interest you’re paying on it all every month.
Fortunately, there are options for getting out of debt and rebuilding your financial life. The key thing is to ensure you are paying off the highest interest debts first. And if things feel insurmountable or you are considering another personal loan, then look at the interest rates to apply for a debt consolidation loan to see if it will work out better financially for you.
Before you apply
Credit card debt can quickly mount up and not feel real, and the only solution is to get a grip on your spending and manage your finances. Don’t bury your head in the sand, things rarely go away if you do. Talk to the citizens advice bureau for free debt advice or speak to an IFA about your options.
Consult financial experts
There are several reasons why you should consult financial experts before applying for a debt consolidation loan.
- They can help you understand your options and make the best decision for your unique situation.
- They can help you negotiate with creditors and get the best terms possible.
- They can help you create a budget and payment plan that works for you.
- They can help you understand the impact of consolidating your debt on your credit score.
- They can help you stay organized and on track throughout the process.
- They can provide emotional support during what can be a stressful time.
- Finally, they can answer any questions you have along the way.
Differentiate between secured and unsecured debts
There are two types of debt consolidation loans: secured and unsecured, and it’s critical you understand the difference before applying. A secured loan is backed by collateral, such as a home or car. If you default on the loan, the lender can seize the asset to recoup their losses.
An unsecured loan is not backed by collateral and is, therefore, riskier for the lender. If you default on an unsecured loan, the lender can take legal action against you but will not be able to seize any assets.
How to apply
Save time with an online application
One of the great things about applying for a debt consolidation loan online is that it can save you time. You won’t have to drive to a bank or meet with anyone in person. And, you can usually get a decision within minutes.
With this type of loan, you will typically use one single monthly payment to pay off all of your debts. In some cases, this means that you could end up paying less each month than what you are currently paying now if the interest rates are in your favour, but it’s essential that you ensure this is the case before applying.
Potentially get better interest rates
If you have good credit, you may be able to get a lower interest rate on a debt consolidation loan than you are currently paying on your outstanding debts. This can save you money in the long run and help you get out of debt faster. But you need to make sure this is the case but looking at what you pay off per month now, and what might be in an interest free period and coming later. And you will need to factor in any fees into your figures.
It can also protect yourself from future problems. When there is an emergency that pops up unexpectedly like a job loss or health issue, sometimes people will start taking out new loans or adding high-interest credit cards as a way to deal with the crisis.
Stop worrying about how much you owe but plan ahead
If you’re struggling to keep up with multiple debts and monthly repayments, a debt consolidation loan could be a good option for you to give you some breathing room as will have a clear monthly repayment. But you can’t relax fully as the cost of living increases, you should plan ahead for rises in bills to ensure you always pay and even have a buffer to cover some extra months. This is essential for secured loans as your assets are on the line.
You should always seek financial advice to make sure it’s right for you, but some people can benefit from a debt consolidation loan to help them manage their finances easier. But it’s also essential to understand why your debt is snowballing, and where possible understand what cutbacks you can make to ensure your income exceeds your expenditure.