It’s easy to find ourselves in debt. Whether it’s renovating the kitchen, making a big family holiday purchase, taking out a loan or just adding small things to the credit card in times of need, adding up debt and seeing it written down in front of us can be very daunting, even frightening, especially when you’re trying to budget for the family and the future. It’s important not to run away from debt though – it doesn’t go away by itself, in fact, it only gets bigger. The best way to get a handle on any debt is to tackle it straight on. Step one is to make a family budget and work out all if your income, all of your outgoings, and all of your debt. Getting the outgoings down is the main way you can save money, and debt repayment can take a big chunk of money every month. If you find you’re paying multiple sources of debt repayment, debt consolidation could bring this down.
I’m going to quickly go over the Pros and Cons of Debt Consolidation so you can see if it’s suitable for you.
Pros of Debt Consolidation
Pay debt off sooner and get lower interest rates
This is the big benefit that you’re aiming for. Debt consolidation is when you move all your debt, from various lenders, to one place. This means you’re only paying back one lump sum to a lender. This not only makes it easier for you to track how much you owe and how much you’re paying, it also allows the interest rate to be renegotiated to a lower figure. This could mean that over the entire debt you’re saving a significant amount of money, as well as having smaller monthly repayments. Learn more about debt consolidation in depth so you can make an informed choice.
Simplify your finances and have a fixed schedule
When we’ve got payments coming and going all over the place, trying to log in and track finances at multiple locations, your bank, several credit cards, a personal loan, catalogues, home renovation offers… it can be easy to get confused, frustrated and even for payments to be missed. By having one loan, one repayment, on the exact schedule you’ve set up, for the same figure every month, you will simplify everything and know exactly where you are.
It will reduce stress
Financial stress is a huge burden to carry, and with rising prices, the pressure is already on families all over the world. Adding the stress of debt to that can be huge. Stress can contribute to serious health problems, as well as affect your personal happiness and have a knock-on effect to your partner or children. By feeling like you’re in control of your debt, you know how much you’re paying and that you’re getting the best possible repayment plan, you’ll feel a lot less stressed. When things are out of control our stress levels rise massively, so use debt consolidation to take back financial control of your life.
Cons of Debt Consolidation
You’ll need a reasonable credit score
Debt consolidation is not for everyone. You’ll need a reasonable credit score to have access to the best possible solutions. Debt consolidation will usually require you to take out one large loan at a better APR than your previous debts, to pay off all your lenders and consolidate it into one lump sum. If you don’t have a credit rating high enough to get a loan, then this might not be the solution for you.
Missing payments will affect that credit score
You need to make sure that the debt consolidation is coming up with a figure that’s manageable and right for you. Missing payments on a new, larger debt consolidation loan could affect your credit score seriously which will have ramifications for the future. On the other hand, making your regular payments can increase your score, so you just want to make sure the solution is the right one for you and take your repayments very seriously. If at any point you think you’re struggling; call the company and see if the repayment schedule can be changed rather than missing a payment.
Your debt can’t be too small, or too large
Debt consolidation doesn’t work if you only have a small amount owing. If you’ve just got a few thousand owing, taking out an extra loan to pay it off may not make financial sense. In this situation you may be better off calling each lender and setting up a payment reschedule that works for you. Most companies will be flexible and want to work with you to pay off your smaller debt as quickly as possible. You may even find it makes sense to cut completely back in other areas and pay off small, high interest debt as quickly as possible.
Equally, if you have a very large debt you may want to consider debt settlement instead of consolidation, or in some situations you may even need to consider bankruptcy. You’ll want some professional advice about that, here in the UK you can always go to Citizen’s Advice, a national charity available in every area of the country. They can discuss your debt with you and talk about debt relief orders, management plans and even bankruptcy, and every appointment is completely free.
I hope this article has given you some thought on your financial situation. Make sure you do plenty of research before making any decisions and hopefully you can find the best solution for you and the family.