In the current financial climate a huge number of us are lumbered with a range of debts that, quite frankly, we could do without. Whilst there is little that we can do about actually having to repay the debt, many of us are able to make debt repayment a little easier on ourselves by looking at consolidation as a means of reducing the number of creditors we pay and even reducing the amount that we are paying.
Debt consolidation is where you pay off a number of smaller debts by taking on one larger debt. Whilst this may seem as though it is pointless, it can actually benefit you in a number of ways. Consolidation could reduce the hassle and time involve with debt repayment by reducing the number of creditors that you have to pay. It can also reduce the amount that you pay on your debts each month, thus easing the strain on your finances.
There are a number of options that you can look at when it comes to consolidating your debts. This includes:
Credit card transfers: If you have a number of high interest credit cards with outstanding balances on you could benefit hugely by transferring all of these credit card debts onto one interest free 0% balance transfer credit card. This would enable you to enjoy a generous period of interest free credit within which to clear the transferred debt. If you feel that you need longer to repay the combined credit card debt you can consider a low interest life of balance transfer card instead, which will enable you to enjoy a very low rate of interest on your transferred debt until it has been paid off. By doing this you can get rid of your variety of high interest cards and have just one low interest or interest free credit card debt to deal with
Secured loan: If you are a homeowner and you have some level of equity in your home you may be able to borrow against your equity and use the money to pay off your existing debts. You will then have one secured loan to pay off rather than a range of smaller loans, credit cards, overdrafts, store cards, etc.
Unsecured consolidation loan: For those who are not homeowners or do not wish to borrow against their home, an unsecured consolidation loan could be another option. You will generally need to have a good credit history in order to get an affordable unsecured loan, particularly in the current climate. However, if you are able to get a competitive personal loan this could be an ideal solution to wrap up all of your smaller debts into one larger one
Speak to creditor if your debts are with one creditor: If you have a range of different debts with one creditor, such as your bank, it is worth speaking to the creditor to see whether they can suggest a suitable and affordable solution whereby you can consolidate your credit cards, bank loan, and overdraft into one. If you have a good credit status and you have been with your bank for a long time you may well be able to get a good deal on a consolidation loan
Friend or family member: Of course, not everyone will be able to consider solutions such as consolidation loans from banks or interest free credit cards. In fact, those with damaged credit will struggle to get any form of consolidation loan in the current climate. Another option is to see whether a close friend or family member can help you out by lending you the money to pay off your debts and accepting monthly repayments for you until you have repaid them.
Esther blogs regularly about personal finance and consumer issues. She also writes about working from home and financial issues affecting freelance workers, from managing taxes to setting up an umbrella company