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Best Way to Consolidate Debt

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Whether you’re frustrated with your credit card debts and find yourself making minimum payments only for a similar amount of interest to be added back on, or your debts are in control but you’d like to make managing your outgoing payments easier, debt consolidation may be an option that you wish to consider.

Let’s take a look at what debt consolidation is and what your options are for consolidating your debts.

What is Debt Consolidation?

Debt consolidation is the act of taking out new finance – usually a credit card or a loan, which we’ll look at shortly – in order to pay off your existing debts, and thus consolidate your cumulative debts into one debt, and one regular repayment.

There are numerous reasons why people choose to consolidate their debts, but typically people choose debt consolidation because they want to take control of their financial situation. Consolidating debts can often help people to get debt free quicker and reduce the overall amount they will repay. This is especially true if a person is in the revolving credit trap like in the scenario we presented earlier; making minimum payments on a credit card but with interest added they are only clearing a few dollars a month on a balance that might run into thousands of dollars.

While there are clear benefits to debt consolidation it is important to consider whether it is the right step for you. Before you go ahead with debt consolidation, consider whether it really will make you debt free quicker or reduce your overall level of debt. You should also commit yourself to not applying for or taking out any other types of credit while dealing with your consolidation, as this may lead to your financial situation becoming more difficult.

How might you consolidate your debts?

Apply for a Debt Consolidation Loan

For most people, the best option when it comes to consolidating their debts is to take out a debt consolidation loan.

The main benefit of taking out a personal loan rather than using a credit card to consolidate debts is that you know when you’re going to be debt free. If you consolidate debts with a credit card but fail to clear the balance before a promotional rate expires, it is unlikely you will know when you’re going to be debt free. Given that becoming debt free is a primary motivation for exploring debt consolidation, this makes a loan a much better option than a credit card.

A debt consolidation loan is particularly good if you take out a fixed rate loan. You will know your interest rate, your repayment amounts, and when you will make the final payment on the loan.

Assuming that you will not take out any other credit or finance during the term of the debt consolidation loan, you won’t need to apply for another loan in the same way as you would with a credit card.

Consider Your Options and Know Your Credit Rating

Take the time to consider your options and think about whether debt consolidation is right for you. As part of this process, ensure you take the time to check your credit file to make sure all the information is correct, as errors on your credit report might be the difference between you being accepted for a debt consolidation loan or a new credit card.

This BLOG was supplied to us by our friends at NOW Finance. NOW Finance is a specialty personal loan provider.  Now Finance is a trademark of Wingate Consumer Finance Pty Ltd ACN 158 703 612 Australian Credit Licence Number 425142.

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