When is it a good idea to consolidate debt?

Whether you only have a couple or a few more debt facilities, including credit and store cards, keeping on top of all required payments can be challenging and time-consuming.

When used properly, debt consolidation can help you manage your debt, and even pay it off faster. But is it the right option for you? Let’s take a closer look at what debt consolidation is and how it can help you become debt-free.

What is debt consolidation, and what are the benefits?

Debt consolidation means rolling all (or most) of your credit facilities into one, easier to manage, payment. There’s a number of good reasons to consolidate your debt:

  • Debt consolidation can simplify your finances, combining the smaller payments into one easier-to-track amount.
  • It can also save you money, provided you use it to reduce multiple high-interest payments into one low-interest monthly payment, and keep the term of your loan as short as you can afford.
  • Lastly, it can help you get debt-free faster and pay less interest overall, if you can achieve a lower interest rate and keep your current monthly payment the same as it is now.

As you can see, apart from saving you the time and energy of remembering what needs to be paid and when, consolidating your debt can save you money.

Debt consolidation loans are often at a lower overall interest rate than your other individual debts (particularly credit and store cards), saving you money on the total interest you pay.

Even if the rate is not lower, you can still save money with debt consolidation, by choosing a shorter term than your current debts and loans. Depending on how much debt you have, and with a fair share of planning, debt consolidation can be a great way to streamline finances and achieve your financial goals faster.

When is it a good idea to consolidate debt

But what are the downsides?

It can be easy to get caught out by debt consolidation if you move your loans to a much longer loan term than your current loans are on. While this may reduce your outgoings, it will usually mean you pay more in interest charges in the long run. If you are extending your loan term, but on a cheaper interest rate, you may still be better off financially – so it pays to compare the total cost of several different options.

If you are in financial difficulty, the total interest you pay may not be as important to you as the fact that your debt is affordable. If this is you, then look for a consolidation loan that will allow you to pay off extra in better times, so that if your finances improve in the future, you can take action to become debt-free faster.

Is debt consolidation for you?

To work out if debt consolidation is the right option for you, start with some key questions. For example, do you know how much you currently owe? How much interest you’ll be paying? Have you worked out a budget? And how likely are you to take out any further debt on top of repaying your debt consolidation loan?

If debt and money matters are on your mind, talk to our team. We can help you consider a range of options, so you can work out what is the best fit for you financially.

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Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure the content is correct, the information provided is subject to continuous change. Please use your discretion and seek independent guidance before making any decisions based on the information provided in this article.