consolidating debt

Are you struggling with debt? Have your finances suffered during the current pandemic and not sure where to turn? Have you got high credit card debt that just seems to be growing rather than shrinking that you need to get back on track, and quickly?

It might be time to look into a way to consolidate your debt instead of continuing to pay over the odds.

The Store Cards Trap

One of the biggest drains on our finances might be store cards. These cards seem like such a good idea when you're in the store, but as soon as the interest begins to rise, you will quickly end up paying well over the odds for your purchases.

What makes store cards even worse is that, after the interest rate rises, we can guarantee that you'll be paying a lot more in debt interest than your savings account is gaining in compound interest.

Consolidation is a good idea in cases like store card or credit card debt because it makes no sense to continue playing over the odds for something when there are other options available to you.

What is Your Credit Score?

Have you reviewed your credit score? Your credit score is a rating you are given to show what a good or bad bet you are for lenders.

A bad credit score could affect your chances of getting credit for all kinds of things, from a credit card to a car and maybe even a mortgage on a house.

Bad scores happen when you have defaulted on debt, such as missing a payment or underpaying, but they can also happen if there has been a mistake on your credit rating, and this could be costing you thousands.

Your credit score is free to check once a year from three different federal bureaus. You will get a detailed report that includes a list of all of your current debt, where you owe money and how much it is. This can be a great way to organise your debt and make sure you are on top of is before getting any angry letters saying you've missed payments that you didn't know about!

Create a Debt List

If you've got your credit rating, you'll now have a list of exactly who you owe money to, and how much. This is vital to know to ensure that you're meeting your repayments, but it also means you can now begin to look for better ways to pay off your debt.

Listing out the balance and the interest rate of your debts will help you to prioritise when it comes to looking for consolidation options. It makes sense to pay off the debts with the highest interest overall with your consolidation loan.

Choosing which debts to consolidate isn't quite as easy as going for the one with the highest interest. This may be good in the short term, but if you have a large debt that is a medium interest, but it will take you a long time to pay off, this one might be more worth paying off than the short term high-interest debt instead.

This kind of 'big-picture thinking' will allow you to take control of your personal finances and make a pact to be better with money going forward.

It's important to list out everything when you're looking to improve your finances, and this means the good as well as the bad. If you have some savings or some equity in your home, list this out as it will give you a much better bigger picture of your whole financial health.

Being able to see the wood for the trees when it comes to debt does make things a lot less stressful.

Looking at Your Options

The very first thing you need to be aware of when you're looking into a loan to consolidate debt is scammers. There are, unfortunately, a huge number of scammers online and in-person who will try to con you out of money, and every year thousands of people lose hundreds, if not millions of dollars to these scammers.

Scammers are particularly prevalent online if you are going to use an online lender for a consolidation loan, be sure to check that they are a reputable lender and that they comply with the privacy laws and financial regulations in your state and your country.

There are a few options when it comes to consolidation. These might be the aforementioned online lenders in the form of a personal loan, you may look into getting a loan from your bank or credit union, or if your debt is credit card based, you may wish to move the balance from a high-interest credit card to a lower interest credit card, meaning you pay off less over time.

Another option to consider is a logbook loan, which enables you to get hold of cash against the value of your vehicle and take some money out of your assets.

To be sure you're not wasting your time or the lender's time, ask for a list of their credit requirements before making an application. That way, you will have a good idea if you may or may not qualify for credit from their particular institution.

Possibly the most popular form of debt consolidation is refinancing; this is moving your debt to a lower interest payment method such as the lower interest credit card. This is usually the easiest to do and will be the option that most people will look into first because it is so simple and effective.

Debt settlement is a method that is used when payees like you are overwhelmed by debt and cannot see a way out. Some creditors will be open to reaching an agreement with the person in debt to reduce the amount of debt owed. This may include reducing your interest rate or even wiping off a proportion of your debt.

This option is usually only available to those who have unsecured debt, that is debt that is not using your assets (such as your house or your car) as collateral.

The Consolidation Loan

If you opt for a consolidation loan, then you will need to make time to apply for the loan and to do this you'll need all of the information we've spoken about previously.

With most consolidation loan applications, you will be notified almost immediately whether you have been successful or not, which can alleviate some stress.

Your consolidation loan application will still be based on your credit score, so if you noticed any inaccuracies or issues with your credit score, it's worth getting these sorted out before you apply for your consolidation loan, to avoid being turned down unnecessarily.

A Debt Management Plan is another type of consolidation. The Debt counsellor will talk to your lenders on your behalf, and oftentimes they may be able to apply for a reduction in your debts. You would then go on to pay the debt counsellor, and the debt counsellor will pay your creditors. This isn't a loan, but it may feel like a loan because you would be making one payment a month instead of many.

Improving Your Finances

It's easy to say, but the best way to avoid getting yourself into a situation where you will need debt management or consolidation is to avoid getting into debt in the first place.

While many things in life are very expensive, such as cars and houses, being debt-free take a lot of work and a lot of personal sacrifices. It's not fun to go without, but it's also not fun to have to discuss your private financial choices with a debt management company.

When you are looking to buy something on credit, it's worth asking yourself a few questions:

  • Do I need this item?
  • Can I find it cheaper elsewhere?
  • Is there a cheaper alternative?
  • Do I need this year's model?
  • Can I get it second hand?

For many people, money comes in, and money goes out, but careful management of your family's finances can offer you great freedom. A great trick for when you're about to spend money impulsively on an item you may not need (such as a new smartphone or games console) is to step back and make a choice, if you still need the item in a week then go ahead and buy it, if you don't or you've forgotten about it, you've just saved yourself a lot of money.

There is a saying in the readiness world, "money in the bank is freedom" and that's worth considering. Thousands of people up and down the country live paycheck-to-paycheck without a care for their future because the future seems so far away. Still, the future comes around pretty fast when your car suddenly breaks down, or there's an unexpected large home repair bill that insurance just won't cover.

Living debt-free may be a pipe dream for some, but with a bit more careful management, most people could live more within their means.

We hope this guide has explained a few things about consolidating your debt, and that you can find a way to live a happy, healthy debt-free life in future.