Your Ultimate Guide To Debt Consolidation

Debt consolidation form, calculator and pen on desk

02 Dec Your Ultimate Guide To Debt Consolidation

Debt consolidation can help simplify your finances and potentially improve your credit score and lending profile in the long run. If you’re currently paying off more than one loan, struggling to make your repayments on time, or feeling overwhelmed by the amount of credit card and other high interest debt you’re carrying, debt consolidation could be right for you. Find out everything you need to know about consolidating debt in this ultimate guide to debt consolidation.

What is debt consolidation?

Managing repayments to different credit providers each month can be confusing, and it’s not uncommon for borrowers to inadvertently miss repayments or make late payments. And because each debt is charged at a different interest rate, if payments are missed debt quickly mounts up, potentially spiralling out of control.

One way around this is debt consolidation: combining all of your existing debts into one new loan and paying them off at once. With a debt consolidation loan, your high interest debt is repaid in full and your repayments go towards paying back your new debt consolidation loan. Which could help you manage your finances better and pay back your debt faster.

What are the benefits?

Debt consolidation loans help simplify your finances. Take a look at some of the benefits:

  • A single regular repayment: Instead of multiple repayments at different times of the month with varying interest rate charges, you’ll pay back just one loan. Plus, because your repayment is a fixed amount, you’ll know exactly how much to repay each month.
  • Potential to achieve an overall lower interest rate: Because the interest charged for debt consolidation loans is often lower than what you would pay for things like your credit card or payday loan, there is the potential to save money and be debt-free sooner (provided you keep paying the same amount each month as you had been before consolidating your debts).
  • Less chance of missed repayments: with just one fixed regular repayment, there’s less chance of you missing a repayment or paying late.
  • Improved credit score: with consistent on time and in full repayments, you’ll positively impact your credit score and improve your chances of further credit later on.
  • A definite timeline: by consolidating your debt, you can take back control of your finances, have a clearer idea of how much you owe, and know with certainty when you will pay back your debt in full.

Find out more about navigating the benefits and risks of debt consolidation in this blog: Risks and Rewards of Debt Consolidation.

How does debt consolidation impact credit scores?

While you may think that consolidating your debt will hurt your credit score, the opposite is in fact true in most cases. Unlike some forms of credit, such as payday loans, debt consolidation is an effective way to manage debt and improve a credit score at the same time. Making arrangements to repay your debt with a debt consolidation loan, demonstrates to lenders and credit providers that you’re serious about avoiding defaults and working towards a financially secure future. As a result of you making consistent repayments and repaying your debt in full, your credit score improves over time.

How to consolidate debt

There are two ways to consolidate debt:

  1. Personal loans: depending on your financial situation, you may be able to consolidate your debt with a debt consolidation loan through Max Loans, either as secured personal loans or unsecured personal loans. Talk to a Max Loans Adviser about which one is right for you.
  2. Refinancing the mortgage: if you’re a homeowner with multiple high interest debts, paying these off by increasing your mortgage could be a viable solution. Talk to a Max Mortgages Adviser about mortgage refinancing to consolidate debt and find out if this option would work for you.

Take control of your finances

To help you decide whether debt consolidation would help you stay on top of your debts, get in touch with the team at Max Loans. We can help you make an informed decision about your financial future, and talk you through the risks and rewards of debt consolidation. And if you are struggling to keep track of multiple debts, take a look at this step-by-step guide on how to get your debt under control, then get in touch with us to get started!

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