Spring is officially here, making now the perfect time to clean up your finances.
If you’ve started to amass debt throughout the past year or so, a debt consolidation loan can help you regain control over your money.
How debt consolidation loans work
It can be highly stressful receiving bills and phone calls from multiple creditors. Not to mention having to keep track of several ongoing repayments.
A debt consolidation loan can help by combining all your existing debts, such as credit cards, store cards and personal loans, into one place.
This means you’ll only pay one set of fees under one interest rate and only have one ongoing repayment to keep track of rather than multiple ones.
Let’s use an example:
Leah owes $4,000 on her credit card and still has $1000 outstanding on a bad credit loan she took out three years ago because of her previous poor credit rating.
She is paying $200 per month on her credit card, and $200 per month on her bad credit loan. Ideally, she’d like to have more surplus cash each month so she can start saving for a holiday next year.
Leah decides to take out a debt consolidation loan of $5500 over 2 years. She uses $5,000 to pay off her outstanding debts and $500 to cover the fees.
Instead of juggling two lots of repayments, Leah now has one monthly repayment of $280, whilst saving $120 a month towards her holiday.
How to take out a debt consolidation loan
It’s important to do your homework before applying for finance. You want to be sure that taking out a debt consolidation loan will put you in a better financial position rather than a worse one.
Calculate how much you’ll need to take out to cover your existing debts, including any fees. Be honest when assessing your situation – you’ll still need to meet the new repayments in order to pay back the loan.
From here, start shopping around for a loan that suits you. No two loans are the same, so make sure you do plenty of research to find one that is best suited to your circumstances.
If you’re approved, you can then use the funds to pay off your outstanding debts, along with any fees or charges. From here, you can continue to make single repayments until the debt consolidation loan has been paid off.
Taking out a loan for a set period of time will give you a clear repayment schedule, making it easier to calculate how long it will take to clear your debts. Having an endpoint in sight can be a great motivator.
As long as you’ve done your research and feel confident you can keep on top of repayments, a debt consolidation loan can help you to get ahead quicker and bring back that spring in your step.
Written by Bessie Hassan – a money expert at Finder