There is a type of financing arrangement that is extended to people who have multiple debts, allowing them to consolidate (or combine) all of their debts into “one” new loan. The loan can be used to consolidate various types of personal debts; however, the most common debt people experience is credit card debt. These people also hold multiple credit cards and they struggle with making their minimum monthly payments.
How does the Loan Work?
Essentially, when you take out a loan to consolidate your debt:
>> You are paying off your credit card debts; and
>> The new loan is established in place of your credit cards.
So, instead of paying several minimum monthly payments on a number of credit cards, you will only have to pay one monthly repayment on your new loan.
What Are the Benefits of Taking Out a Loan to Consolidate your Debt?
The benefits of the loan can be worthwhile for people with heavy debt that is dispersed amongst a multiple of credit cards. So, for these people taking out a loan to consolidate their debt is beneficial in the following ways:
>> Lower their monthly repayments;
>> Lower their interest rates;
>> Help them to get out of their debts faster; and
>> Protect their credit rating.
What should be your Debt Repayment Plan?
Start by tallying up your current debts. Don’t ignore your debts and pretend that they will just go away. Instead:
>> Pull out all of your most recent account statements; and
>> Create a list to help you tally up your debts.
Remember, if you have not received your latest credit card account statement from a certain creditor, call them up and ask for your most recent statement or balance.
How to Get Your Budget Back on Track?
Give yourself a good chance to get your budget back on track by doing following things:
>> Eliminating your credit card spending for at least three months (i.e. this will enable you to shift your focus to cash-based spending); and
>> Stabilising your spending and avoiding accumulation of more debt (i.e. this will make it much easier to stick with a debt repayment plan that actually works).
It is important that you take steps to improve your financial situation. If you keep your budget on track and make timely payments on the new loan, you will be able to avoid a similar debt situation in the future.
All the best!