If your New Years Resolution was to sort out your finances, consolidating your debt is a great place to start. With interest rates at record lows, it is a perfect time to consolidate your debts and work towards paying them all off under one banner. In this blog, we have compiled an outline of debt consolidation as well as the key reasons why you should consider doing it.
What Is Debt Consolidation
First, let’s talk about what debt consolidation is and how it works. As the name would suggest, consolidating your loans is where you combine these loans into a single one. This is ideal if you have several loans at the moment and are having trouble managing them or keeping up with your repayments. However there’s more to it than just simplifying your life. In the next section, we share with you why it makes sense for you to consolidate your loans.
Why Consolidate Your Loans
Here are a number of reasons why debt consolidation might work for you:
- It helps you start fresh. Every new year that comes around is a great way to start anew. So if you have problems with your debt, then consolidating your loans can help you keep your finances back on track. Doing so can then be a good first step for you to improve your credit rating, particularly if it has been impaired by late payments.
- Makes it easier to manage your debt. When you consolidate your loans, you combine all of them into a single loan. This is particularly helpful if you are currently managing several debts at the same time, such as your credit card, a car loan, and your mortgage. That way, you will always be on top of your loan repayments, and it will be less confusing since you will only pay for one loan. This could then help prevent you from falling behind on your debts once and for all.
- Interest rates are at record lows. If you are having difficulty repaying your debts because of high interest rates, then consolidating your loan might enable you to finally enjoy the record low interest rates at the moment. This may be the case if you are having trouble paying your credit card debt, which typically comes with high interest rates.
- Choose a loan that works better for you. Not satisfied with your loans at the moment? Consolidating them can then help you choose one that works for you. If, for example, you prefer your loan repayments to be as predictable as possible, then you can choose to fix your interest rate. Meanwhile, if you prefer lower interest rates, then a variable rate loan might work better for you. In addition, a variable rate loan may be more flexible compared to a fixed rate loan.
Things to be Aware of When Consolidating Your Debt
Debt consolidation isn’t a perfect solution, however. Just like other solutions available to you, it has its share of downsides. For one, consolidating your debt might lead you to pay more for certain smaller debts like credit card expenses or a car that you could have paid off sooner and saved money on the interest. If you consolidate your credit card debt with your 25-year mortgage for example, then you’ll be paying for that credit card debt for 25 years, as opposed to a much shorter time period if you were paying off just the credit card debt on its own.
Remember, too, that there may be other options available to you when it comes to repaying your loans. Carefully weigh these options up and see whether or not consolidating them might be the best one for you.
Your lender may also charge extra fees and charges for their service. You have to be aware of what these are to help ensure that their service would actually help you manage your debts better instead of making your financial situation more difficult than it already is.
All in all, consolidating your loans can let you get on top of your debts once and for all. However, keep in mind that this solution may not be for everyone. So consider your decision carefully, and see if it is indeed for you. A Launch Finance broker can help you weigh up your options and work out the best course of action for your finances.