The benefits of rolling multiple debts into one affordable payment
Trying to manage multiple different debts can be a nightmare. Each debt likely has a different repayment date and different amounts, which means constantly trying to stay on top of what you owe and who you owe.
Debt consolidation is an excellent way for you to combine all your debts into one single monthly repayment. This removes most of the stress and complication, simplifying your finances and potentially reducing your overall interest payments.
Keep reading to discover if debt consolidation is the right choice for you.
Understanding debt consolidation
Put simply, debt consolidation is a loan designed to pay off all your other loans. This covers almost all types of debt, including overdrafts, store credit, credit cards, and personal loans. While consolidating your debt won’t reduce the amount you owe, it does make your payments easier to manage.
Additionally, if your debts have a high interest rate, you may see an additional benefit. That’s because the consolidated interest rate could be lower than the rates of the individual payments. Ultimately, this would lead to a lower total amount to be repaid, potentially saving you money in the long run.
Simplified financial management
The largest benefit of debt consolidation is that you now only have one monthly payment to worry about. When you have multiple payments spread throughout the month, you need to ensure that you have enough money in the right account before payments get taken.
It also means you don’t need to constantly worry whether you have enough to cover additional expenses, such as a night out, a meal with friends, or a surprise gift for a loved one.
Instead, by having one payment date and one amount, you can manage your money more easily. In turn, this can help you repay your debt and avoid incurring any more.
Potential cost savings
Another reason some people choose to get a debt consolidation loan is due to the potential cost savings. That’s because high interest rates are one reason some people struggle to pay off their debts.
A debt consolidation loan can often result in a significantly lower interest rate, meaning your repayments are paying off the loan itself instead of just the interest. Over time, that means you can end up saving a substantial amount, helping to improve your financial situation.
Of course, debt consolidation loans often have favourable repayment terms too. That means you have more time to pay off a loan, which can result in lower monthly payments. Overall, this can radically change your financial position, helping to make your situation far more manageable.
Risks and considerations
Of course, there are some key risks you need to watch out for. The largest risk is the temptation to accrue new debt. Since your debt has become manageable, you might be tempted to take out a new loan, since it’s only one extra payment.
We strongly caution against this, however, since this is the first step to loans becoming unmanageable and putting you in an even worse financial position.