What is debt consolidation
17 September 2013
Although it may seem counter-intuitive, debt consolidation - where you borrow extra money to pay off your existing loans - makes perfect sense for most of us.
Paying off credit cards
There are so many sources of finance available to us these days that it's not uncommon for people to have a couple of store cards, a credit card, vehicle finance and maybe a mortgage. Each lender will be charging you a different rate of interest - the chances are the store cards will cost you the most and your mortgage the least. There's also a strong likelihood that some of the lenders will be levying monthly admin fees or annual card charges.
Cutting interest payments
By using a lump sum of cash to pay off as many of your outstanding debts as possible, you'll reduce your interest bill and consolidate all of the bank charges and admin fees into a single, more manageable, payment.
Most people will raise the capital to consolidate their debts by taking out a personal loan or by extending their mortgage. Although the lower interest rate on your bond might make it seem like the more attractive option, it's actually much better to use a personal loan for debt consolidation. This is because a personal loan will be paid off over a 12, 24 or 36 month period. By using money from your bond, you could actually end up paying off your store cards over 20 years!
If you want to consolidate your debt, start by working out exactly how much you owe - as well as how much interest you're paying every month. There's a handy account consolidator tool on our website to help you do just that.
Once you've worked out how much you're paying every month, choose a loan amount and repayment term that will allow you to pay off your debt in full.
If you'd like our help with picking the correct loan amount or want to know what loan amount you'd qualify for, select one of these links to complete an online loan application or ask us to call you back.