What are the benefits of debt consolidation?
Some of the possible benefits of consolidating debt include:
- Reduced monthly repayments
- Lower interest rate on repayments
- Only one creditor
- Less fees and charges
- Less paperwork
- Regaining control of your debts
- Extended repayment period
Things to consider before consolidating debt
The biggest single issue with debt consolidation is that your debt is now ‘secured debt’, so if you don’t pay it back, you risk losing your ‘security’ – your house. Other typical consideration points with debt consolidation include:
- Your debt may take longer to pay off and cost more because of the longer period of time you have to pay it off
- It may affect any future loan applications
- You may need to provide extra security for your loan
- There may be fees and charges associated with setting up your debt consolidation
- If you fail to meet repayments, your property may be at risk
- If you don’t cut up your credit cards, you have essentially freed up your credit card to accumulate more debt
Getting back on track
Although you may only be able to make the standard required repayment of your consolidated debt at first, as your finances improve you should aim to increase your repayment above the minimum required. This will help you to reduce the interest charges over the life of the loan.
Be mindful that debt consolidation should not be seen as a ‘complete fix’ and it’s important to look at the underlying reason you have excess debt in the first place; debt consolidation is simply a useful strategy to get your finance goals back on track, not an all-out solution to your financial problems.