Bundle it Together – The shared Sense Guide to Debt Consolidation

Debt Consolidation is the time of action of putting all existing debts together in one place, and can save you money both on a regular basis and over the longer term.

However, it is important to understand the downsides of debt consolidation so that you can take advantage of the offers obtainable.

This guide is designed to look at how to consolidate your debt in the most effective way possible in addition as the points to consider to ensure that you do not end up paying more in the longer term.

Why put all you debts in one place?

There are a number of reasons you would look at putting your debts “under one roof”. Firstly, most personal loan lenders tend to provide more preferential interest rates if the amount borrowed is larger. This may average that you have a number of smaller loans and you may end up paying a lower interest rate by putting all your smaller loans together.

Secondly it may help you organise your finances more effectively.

Imagine how much easier it would be if you had one monthly payment coming out of your account, as opposed to four or five at different stages of the month.

Thirdly, in addition as reducing the interest you pay overall, it can reduce your monthly outgoings. However, you need to ensure that you do not focus on just reducing your monthly payment as this may average that you end up paying more overall due to the fact that you end up extending the term of your loans over a longer period than you would have done in the first place.

What do I need to consider when looking at debt consolidation?

Debt consolidation, if researched and well thought by, can be a useful tool in effectively managing your money. However, many people go into into arrangements either out of desperation or get talked into arrangements that are not appropriate for them. When looking into debt consolidation, seek independent specialized advice.

A range of information and advice supplies can be found in the ‘Moneylinks’ banner at the side of this page. However a good place to start is your local Citizens Advice Bureau. The areas you need to consider when looking at consolidating your debts are:-

– Interest Rates – Are the interest rates on the interest rates on the new arrangement competitive? Are there competitive rates obtainable for the complete term of the lending arrangement?

– Terms of the new arrangement – What additional charges are there except the regular interest? Are there any one off fees?

– Redemption Penalties – Can you fully repay the lending arrangement at any time without penalty? If there are penalties, how restrictive are they?

– Expiry of special deals – How long do the special deals last? How attractive are the terms after the special deal finishes?

What do I need to be careful with when looking at debt consolidation?

– There are many companies who attempt to sell additional insurances with the loan. Although it is important to consider protecting against unforeseen circumstances (like unemployment, sickness or basic illness), it is better to shop around for this aspect in addition, you have shopped around for the loan, you should shop around for the protection component in addition.

– Ensure you fully understand the contract involved and that arrangement you are entering into is right for you.

– Do not focus on a monthly budget, look at all the terms associated with the arrangement and ensure that you are comfortable. Do not jump out of the frying pan and into the fire… please consider your options carefully, and if you are confused seek specialized advice.

Is debt consolidation right for me?

Debt consolidation can be an incredibly useful method of allowing you to pay off your debts quicker, but you need to ensure that a great deal of consideration is put into ensuring it is right for you. It is also important that you review the arrangements on a regular basis.

The ultimate goal should be to fully repay all of your loans and credit cards in the quickest period possible with the lowest possible costs to you. However many people make debt consolidation arrangements which reduce their monthly payments, but ending up having to pay for a longer period and consequently paying more overall.

Think about your longer term goals when looking at debt consolidation, and not just saving money over the short term… and remember, the quicker the debts are paid off, the better off you will be once this is done. Ultimately, only you can decide if this is the right option for you, but if you need any further guidance, contact your local Citizens Advice Bureau, or look by our Moneylinks for further guidance.

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