Debt Consolidation: 3 Tips To Bringing Your Debt Under Control
If you are in debt, and especially if you are struggling to make your repayments, you know only too well the stress and anxiety this can cause 😞.
There are many levels of debt that people get into, in this article, we look at a few things we can all do right now to start getting your debts under your control.
Step 1: Do Your Numbers
You may have heard this 100 times before, and it might be the most boring solution, but also the one that can have the biggest impact!
In 2008 I had severe debt problems, credit cards, loans, mortgage, all of which I thought I was not going to be able to pay.
The key starting point to sorting this problem out was to get all my paperwork out (bills, bank statements etc.) put everything into a spreadsheet.
So much of the issues around debt relate to your emotions, that feeling that everything is closing in on you, and there is no way out. It is truly amazing the effect of sitting down and seeing in black and white the actual numbers. What you specifically owe, to who, etc.
The process of doing this starts to get your mind working on solutions, and gives you a feeling of taking ownership, which is so important.
The opposite approach of ‘sticking your head in the sand’, ignoring the paperwork, hoping it will go away, literally only makes the situation worse, the people you owe money to will not all just disappear!
So start taking control of your situation, get all your paperwork out, and a large cup of tea, and start working out your budget.
- For a quick way to start budgeting, please give this useful tool a try – https://www.moneyadviceservice.org.uk/en/tools/budget-planner
Step 2: Cut up your credit cards
For many, this is the most painful step of all but there can be no avoiding it! Take the scissors to those credit cards.
The problem with buying now and paying later (as you do with a credit card), is that the mind does not really challenge itself on whether it really needs that thing now.
So its easier to buy things you absolutely do not need.
Credit cards can also come with high-interest rates, especially if you roll the balance over from one month to the next, so this makes every day spending much more expensive.
- Candace at the ‘Social Moms’ offers 5 reasons to cut up your credit cards. To find out what they are, please click here.
Step 3: Consolidate your loans
When you consolidate your loans, you are taking out one larger loan, to pay off a number of smaller debts (credit card, overdraft etc.).
The idea is that the larger loan has a lower but manageable monthly repayment, so lowering your costs, and helping you to cope with the debt.
It also can help you simplify your life by only having one debt to deal with compare to multiple smaller ones.
So in the situation where your monthly repayments are greatly reduced, thus making your debt much more manageable, this can be a good thing.
However, if your payments are not reduced by much, and the new loan has a much longer-term than your existing debts, you could end up paying more interest.
You should therefore do your calculations and research before getting a consolidation loan.
Secured loan warning! If you have unsecured debts such as a credit card, loan, overdraft, it is not a good idea to say extend the mortgage on your house to pay these off, even if it will reduce your monthly repayments. Simplistically put
- If you stop paying unsecured debts, this may result in a CCJ, and a damaged credit file, and there are mechanisms such as IVA’s and debt management plans, which will help you out of the situation.
- If you stop paying your mortgage, you will probably lose your house!
This video outlines the principles behind the practice of debt consolidation:
The Money Advice Service offers insight and advice relating to debt consolidation loans, please click here for more.
- If you have a bad credit rating and are looking for an affordable loan to consolidate your debts, get more information here.
- The great team at Step Change offers a debt consolidation calculator to help you make a fully informed decision. Click here to see how it works.
Debt consolidation, in some situations can work well for those with smaller debts; but it certainly is not right for everyone.
For further information and alternative other options see:
We are a small firm of loan brokers and specialise in helping those with a poor credit rating.
Our speciality is the guarantor loan because they are currently the most cost-effective type of loan if you have a poor credit rating.
So in some circumstances a guarantor loan can make a suitable debt consolidation loan.
For more information see:
IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY