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If you have an unhealthy relationship with debt, then the consequences for your financial future can often be considerable. For this reason, it’s worth taking steps to get your debts into shape, so that they can be reduced more quickly.
Understanding Your Current Borrowing Situation
If you don’t have a good understanding of the scope and scale of the problem you face, then you might struggle to solve it. For this reason, it’s important to review your finances, and establish exactly how much you owe, and to whom. Sort your debts by the interest rate, minimum payments, and repayment terms. This step is crucial, since it will allow you to prioritise the more expensive forms of debt.
Benefits of Simplifying Multiple Repayments
Often, it can be useful to turn many different debts into a single one. That way, you’ll have just one amount leaving your current amount each month. In many cases, this can result in your overall effective rate of interest going down, which will limit the overall cost of your debts.
In recent years, the Bank of England has raised rates considerably, which has put pressure on debtors. Given this, simplifying your monthly outgoings has become even more worthwhile.
Exploring Flexible Repayment Options
It might be that you can find other ways of paying, to ease the pressure on your day-to-day finances. You can, in many cases, adjust the terms of your loan. You might fix the rate of interest, to give yourself a predictable target to meet each month, for example.
Unexpected hikes in the rate can derail your plans, no matter how carefully you’ve laid them. However, it’s worth bearing in mind that the rate can also come down, and so by fixing you risk leaving money on the table over the duration of a given loan.
In some cases, the lender might agree to allow you to take a repayment ‘holiday’ of several months, usually at the start of the loan. This might not be interest-free, so be sure that you’re actually going to be better off before you agree to such a thing.
When and How to Consider Debt Consolidation Loans
The easiest way to simplify your financial life is through debt consolidation loans. You can use one of these to pay off all of your existing debts, swapping them for a single, simple one.
Make sure that you consider the loan carefully before deciding, as the terms could have a significant impact on your future!