Financial need never set within the ends of funds accessible to us. On average, UK families pay £1,868 in interest every single year? Not only that but – as of January 2018 – people in the UK owe £1.576 trillion (Bamboo).In such situations, people require extra money to stay resolute. But the concluding question that projects are- where to seek help from- family and friends or opt for a loan?
Money management is a bizarre concept for people who are drowning in financial distress. Furthermore, it is necessary to know the accurate way to pack your debt. The right way of debt consolidation is important- it will balance funds that can help you boost your savings and gain financial freedom.
However, debt consolidation can only work for you if you’re disciplined, follow what consolidation can and cannot do, and follow the simple guidelines that the credit carries.
In this blog, we’ll be going back to basics, as we explore debt consolidation and using a loan for maintaining your debts and other claims.
Concept of Debt Consolidation
Debt consolidation is a concept of gathering several debts and small size credits, into one. The idea behind consolidating your debt is to lessen the number of payments you make, and if feasible, decrease the interest charge you pay, making it easier to pay off the balance evenly. It helps to track your payments, and in making sure that no repayments are missed. Debt Consolidation Loans are offered by many loan brokers and lenders in the UK financial market to facilitate and comfort your life and finances in an appropriate manner.
“FINANCIAL PLANNING is about more than just good advice or investment returns. It’s about providing GUIDANCE THAT YOU CAN TRUST”
Things to Keep In Mind Before Applying
While debt consolidation can be an efficient way to get control of your debt and unexpected claims, there are a couple of things to keep in mind before you lock your loan application.
- Debt consolidation usually will not include secured credits like- car loan or home loan. It will apply on to unsecured debt like a credit card, personal loans, and lines of credit.
- Debt consolidation will not work unless you start keeping a watch on your expenses. The best course is to cut up the credit cards.
Types of Debt Consolidation
There are many ways to consolidate your debt. Here are some to count.
- Debt Consolidation Loan: Many financial companies offer consolidation loan, including conventional banks and online lenders. If you already have a connection with one of those, it will help you to get a break on the interest rate.
- Personal Loan: For a personal loan, you’ll make the same repayment every month for a set term, typically between three to five years. Because a personal loan has a set duration, it becomes easy to watch your budget and know when you’ll eventually be free of debt.
- Homeowner Loan: If you have equity in your name, you may be able to use the gains of a homeowner loan to pay off your debts. Because a homeowner loan is unsecured, it doesn’t require collateral to back it. Also, the credit is ideal for repaying previous debts or use it for home improvements (like home improvement loans) to evaluate the value of the property. However, this credit is like a double-edged weapon, as if you run into trouble later and can’t make your repayments, you’re putting your credit score at risk.
Benefits of Using a Personal Loan for Debt Consolidation
- Improves credit rating: With a personal loan, you are left with a single loan to pay for in steady payments, which helps you to manage your budget. This, in turn, progressively helps in improving your credit rating.
- Reduces the rate of interest: The people with high-interest price debts and other claims can make use of debt concentration to draw down the interest rate they repay. Receiving an option to reduce the interest rate on existing loan should never be omitted, as it will allow you to cut down your interest.
- Reduces monthly returns: By consolidating debt, you can split the current instalments into affordable payment for a longer term. It helps in maintaining and tracing the payment and help you clutch enough money to meet other expenses. Furthermore, it allows for saving more funds for further obligations.
Using personal loan or another sort of credit for debt consolidation is very engaging, but at the same time, it is essential for the borrowers to understand all the parameters of a loan before opting for one. In the end, the borrower needs to concentrate on increasing financial profits to get rid of debts and credits. Finally, making both big and small changes will allow you to create a functional budget, with the goal of keeping your expenses within frontiers.