When it comes to managing your finances, everyone is different. About a dozen people suffer from poor money management for every frugal person and find themselves in masses of credit card debt due to poor spending habits. On average, come June of this year, it was reported that the average amount of credit card debt per UK household was around £2,229, which is a testimonial to the bad spending habits of most Britons.
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Yet, when our money management begins to slip, getting it back on track can be challenging. Seeing a massive number of pending outgoings can cause a lump to build in our throats, and over time keeping track of all your debts can become more and more overwhelming. If you find yourself painfully relating to the previous statement – it might be time to consider debt consolidation.
When done effectively, debt consolidation can be a valuable tool for getting your finances back on track and saving you money. Yet, some debt consolidation methods can be more effective than others and picking the wrong approach can do more damage than good. Therefore, it is essential that you do your research before you decide to consolidate your debt, understand your options, and pick the one that is best for you. From poor credit loans to debt management plans, we outline some of the best ways to consolidate debt below:
Debt Consolidation Loans
Are you struggling with multiple credit card repayments? Does it feel like several more debts filter in every time you make one repayment? If this is the case, you might benefit from taking out a debt consolidation loan that can help simplify your repayments, understand your debt better, and even offer you a lower interest rate than you’re paying on your current debt.
So long as you have a good credit score, this personal loan can help reduce your debt by hundreds of pounds by minimising the amount you owe in interest. On the other hand, if you’re credit score is less than satisfactory, rest assured that there are poor credit loans available to help you consolidate your debt, but you might not qualify for terms that someone with good credit would receive.
Therefore, before you decide to consolidate your debt with the help of poor credit loans, it is essential that you shop around and compare providers so that you have a good understanding of all the options available to you. Discover the options available to you by visiting providers’ websites, such as New Horizons, a broker specialising in poor credit loans.
Peruse their website to learn about the types of poor credit loans they provide, read reviews from satisfied customers, study loan guides, and much more. Consider getting in touch with them to check your eligibility and see how enlisting their services could help you on your road toward financial freedom today.
Debt Management Plan
Another option for individuals that want to consolidate their debt is debt management plans. Non-profit credit counselling agencies offer these types of debt consolidation. They are designed to help individuals struggling with a large amount of credit card or personal loan debt. However, be aware that they don’t cover student loans or secured debts.
If you go down this debt consolidation route, you will meet with your creditors or a licensed debt management company to arrange a plan to pay off all your outstanding debt. You can either do this directly with your creditors, or a credit counsellor will contact them on your behalf to negotiate the terms of the agreement. This may involve determining lower interest rates, fees, and monthly payments or all three; once the plan is made, they will take over as payers on your accounts.
After this meeting, you will start making monthly payments to your chosen debt management company, and they will share this money with all your creditors. Bear in mind that if you go down this debt consolidation route, you may have to abide by specific rules until your debt has been cleared, such as closing your credit cards or applying for new credit, as this may cause the company to withdraw from the plan.
Borrow From Your Pension
For most of the working UK population, our sixty-sixth birthday can’t come soon enough, as this is the age we can claim for our State Pension. However, some of us get the opportunity to dip into this nest egg sooner, as some creditors might take money from your pension to consolidate your debt.
Although this may seem like a good option at the time since money that is not seen can’t be spent, the decision to take from your pension fund should not be taken lightly since the cash you take now could impact your way of living in the future.
However, due to the risks associated with this debt consolidation method, it is often considered the last resort as it can cause many difficulties later in life. Borrowing from your pension pot can impact the benefits you receive now and in the future; it can leave you with an unexpectedly large tax bill and cause financial difficulties once you reach retirement age.
Balance Transfer Credit Card
An alternate way of consolidating your debt is by applying for a balance transfer credit card which, as the name suggests, allows you to transfer the money you owe on one credit card to another that charges less interest than the original card. Since these cards typically have a 0% interest between the first twelve months, they can be an excellent way of regaining control of your debt when used correctly.
Using a balance transfer credit card, you can save money, enabling you to pay off your debt quicker. However, it’s worth bearing in mind that these reduced interest rates only last for a limited amount of time, so if you don’t think that you’ll be able to repay all of your debt during this promotional period, it’s worth comparing the interest rates on your original card and the balance transfer credit card and seeing whether it’s lower or higher.
Since once the promotional period on your balance transfer credit card runs out, you will be charged a fee on whatever amount you transfer, which will be added to the overall amount you owe. If the interest rate is higher on your new card than your original one, this debt consolidation method may not be a feasible option for you.
Borrow From Your Home Equity
Providing that you have equity in your property, you could consider using a home equity loan to get the money you need to consolidate your debts. Since home equity loans typically offer low interest rates, as they pledge your house as security for repaying the loan, this is often a popular method of debt consolidation.
However, despite the benefit of low interest rates, using this debt consolidation method involves significant dangers. Since in the event of default your house will be forfeited, therefore much like borrowing from your pension pot this method is often used in emergency scenarios or once all other alternatives have been exhausted – so ensure that you make this decision very carefully
