Conversations with a Pug – Is Debt Consolidation Right For You?

A debt consolidation loan combines all your outstanding debts into one, so now you only have one debt at a reduced rate of interest and lower monthly payments than the combined cost of all the consolidated bills. If you have become overwhelmed with multiple debts and you are struggling to make minimum payments on any or all of them, rolling all these into one repayment can be easier and less stressful to manage.

Another reason to consider a debt consolidation loan is if you want to focus on paying off a mortgage. By lumping all your other debts together, you can simplify repayments, and enjoy the benefits of a reduced interest rate. This gives you more funds to channel into your primary debt, increasing your equity.

Reassess your current loans

Before securing a debt consolidation loan, you could investigate whether switching your home loan would be beneficial. If you can find a home loan with lower interest and lower fees, you could channel the savings into repaying your debts. As your property is your primary asset, it is important to protect this asset while you reduce your debt.

A credit card balance transfer – where you move credit card balance from one card to another – gives you access to a honeymoon period where the new card has lower interest for a certain time period. While this can be helpful if you can pay the debt off promptly, it can also aggravate the situation.

Negotiating with individual creditors might help you buy some time or even reduce or cancel the debt.

Double-check the figures

Before signing off on a debt consolidation loan, check that this is actually the cheaper option. The loan is meant to reduce your overall costs and interest rate, so make sure this is the case. Avoid any “honeymoon” deals where the interest jumps drastically after a certain timeframe, as you don’t want to dig yourself deeper into unnecessary debt.

Set up a budget

You don’t want to start collecting additional debts on top of the consolidation loan, so stick with one credit card for emergencies and set some strict limits on your spending. Make it your priority to reduce this loan. If necessary, speak to a financial counselor to discuss any issues you have in relation to spending.

Make regular repayments

Just because the original creditors have stopped bothering you doesn’t mean the debt has been wiped clear. Focus on paying off the debt within a realistic and efficient timeframe with regular repayments. By reducing all your other debts, you can focus on paying off your home loan, as this increases your equity and improves your overall financial position.

Talk to a financial advisor

A good financial advisor can help you decide whether a debt consolidation loan is the right strategy for you. If you are determined to reduce your debt and increase your equity, debt consolidation can be an efficient and effective option.