Debt is still a taboo topic, but UK households have an average of £66,435 of outstanding debt. Debt is one of the top stressors, with adults reporting feelings of anxiety, depression and stress surrounding the topic.
Being in debt doesn't need to be a nightmare as there are options you can explore. Here are some tips on how to consolidate your debt in an affordable way.
Understanding your current debt picture
Before you can begin to think about ways to solve your financial woes, you need to have a realistic picture of what is going on.
Time to sit down and make a spreadsheet detailing all income and outgoings. Make sure to note any outstanding debts such as mortgages, loans, credit cards and finance agreements. Be sure you know how much the repayments are as well as the interest rates.
Exploring your consolidation options
There are several different routes to explore when it comes to debt consolidation. You can apply for a loan with the intention of using it to pay off multiple other loans. By doing this, multiple payments are reduced to one, which some find more manageable.
There is also the option of using a balance-transfer credit card. Some debtors find having a formal debt management plan helpful, too.
Calculating the costs and benefits
If you are considering taking out a loan, there are things to think about. Being able to focus on one monthly payment is a lot easier when it comes to budgeting, but it can end up costing you more in the long run.
First, make sure you are aware of all the terms. Be clear on repayment amounts, interest rates and the length of the loan. This will allow you to make an informed decision.
When you factor in interest and overall repayment amount, consolidation of any form may actually end up costing more. You may also end up paying the debt back over a longer period, especially if you are combining multiple smaller debts into one large amount.
Avoiding common pitfalls and staying on track
Getting out of debt takes a lot of hard work. Even if you do manage to get yourself clear, you need to understand how you got there in the first place. Making changes to your budget and spending habits needs to be sustainable to stay financially clear.
It is important to understand that a consolidation loan is still borrowing. Make sure you keep up with repayments or it could have a significant impact on your credit score as well as your finances. This will make it harder to get lines of credit in the future for things such as a new phone contract, a remortgage or car finance.
