A Quick Guide to Debt Consolidation

July 29, 2022

During a time of economic uncertainty it is only natural for anyone to consider all of their financial options. All too often it is tempting to jump to extremes, file for bankruptcy and perhaps move on to remortgaging after bankruptcy. There is another way, however, and this handy guide will show you what can be done to help protect you from insolvency.

It is true that filing for bankruptcy can offer a fresh start, and get you out from under the pressure of credit card debt in particular. Another option to consider is debt consolidation, which differs considerably from bankruptcy and allows an alternative form of debt relief.

One of the most important things to understand about debt consolidation is that you will not be writing off any part of your debt. The practice involves taking on a single loan, consolidated from all existing debt, at a much lower interest rate. Essentially you will be paying less to be in debt.

Taking on a personal loan from your bank or credit union is often the first step toward full debt consolidation. You may also be able to apply for a 0% APR balance transfer card which can swallow up existing balances. Another option is to take out a Home Equity loan.

So what are the circumstances which would best be addressed by taking on debt consolidation? It is certainly true that the current cost of living crisis has added an extra squeeze to much of our daily lives. The goal behind debt consolidation is largely to simplify complicated financial arrangements for people.

If, for example, you are currently making multiple monthly payments then it is definitely a good idea to streamline your finances. Debt consolidation allows you to combine your debts, thereby ensuring that instead of a struggle to hit several monthly targets you rather have just the one payment to make each month.

As mentioned previously it is also possible that by taking on debt consolidation you will actually wind up saving money as you pay off debts. Reducing everything down into one easy payment also significantly reduces the amount of interest you would pay on any given loan, which helps considerably when trying to lower debt or escape it completely.

When compared to bankruptcy, debt consolidation offers numerous advantages. For example, your credit score will only suffer a slight bump if you take out a debt consolidation loan, whereas filing for bankruptcy can affect your credit score for up to 10 years.

The final thing to consider is that some places which offer debt consolidation loans require payment of origination fees. This might be a flat fee or one off payment, or it could be between 1% and 8% of your loan. Taking on a debt consolidation loan still saves money overall thanks to lower interest rates, but always be sure to read the paperwork and see exactly what you will be paying.

Your home may be repossessed if you do not keep up with your mortgage payments.

Back to Blog
;window._klOnsite = window._klOnsite || []; window._klOnsite.push(['openForm', 'R6NsLH']);