Tidy Up Your Finances with Debt Consolidation

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Tidy Up Your Finances with Debt Consolidation

Debt Management • by Paul de Beyer • 18 October 2019
Every one of us has probably spent some time over the past month cleaning out a cupboard, garage or even just your car’s cubbyhole. It’s a great feeling when you look back at the newly-cleaned area and it's just so easy to see what you have. Funny thing is, debt is a lot like that cupboard.

Tidying up your debt is something very few of us think of, but it can be as rewarding as a regular spring clean. Debt is one of the burdens most of us deal with on a daily basis and it can have a negative effect on our mental health, as well as our overall financial situation.

One of the biggest ways you can spring-clean your debt is to consider debt consolidation. Debt consolidation is when you gather up all your debts and restructure it so that you only have one monthly payment. The main reasons you might want to consolidate your debt are:

  • If you have multiple creditors, each with their own terms, fees and interest rates, it can be extremely confusing what to pay off first.
  • By simplifying your payments, you could end up paying less money each month due to a more favourable interest rate and term.
  • You can clear your debts all in one go, leaving you with only one payment to worry about.
  • By clearing multiple debts, you can potentially stop yourself from going into arrears, missing payments or getting “black marks” against your name due to missed payments.
  • It seriously reduces your overall stress levels and allows you to concentrate on making one payment.

There are two ways you can consolidate your debt:

  1. A personal loan: This way you contact various lending institutions and apply for a personal loan that covers your entire debt. You then take that money and pay off all your other debts. This method leaves you in a position where you need to find the right lender, negotiate the best deal and be disciplined enough to use the new loan to pay off your current creditors.
  2. A debt consolidation company: by enlisting a debt consolidation company, you can have them negotiate with your various creditors, working at reaching a settlement where a new monthly amount is due each month. After that, you then pay the debt consolidation company a set amount each month which they in turn will use to pay your various creditors. They act as a buffer between you and your creditors.

Debt consolidation isn’t a decision that should be taken lightly. To really understand if you’re a candidate, you should figure out your new affordability:

  • Take your income/salary after tax.
  • Remove all your necessary expenses (the ones you cannot do without like rent, petrol and food).
  • Review all your current debit orders that go off each month such as medical insurance, funeral policy and cellphone contract, etc., and decided what you can cut or reduce.
  • Once you have all these necessary expenses worked out, subtract them from your salary. What’s left is what you can realistically afford to pay back each month on your current debt.

One thing to bear in mind: debt consolidation isn’t a “silver bullet” or magic fix for any financial situation. By choosing to go down the road of debt consolidation, you’ll end up paying off a larger amount over time, even if the interest is lower. The length of the term will be much longer than your current debts which means that over time, the amount you pay back will be far greater.

Furthermore, you’ll need to change your approach to finances to ensure that you can firstly pay off the consolidated debt and that you don’t end up creating more debt in the future. The only way to do this is to change your spending habits and work towards changing how you handle money and debt.

Creditgenie will not only help you find a loan to consolidate your debt, but by becoming a Creditgenie member, you gain access to their Financial Wellness Programme that will get you started on the right path. Your financial expert will help you understand the ideas of budgeting and keeping on top of your current loan repayments, giving you the best chance of success. Sign up now…