Be in the know with Debt Consolidation in 2021

With the current pandemic, we either find ourselves to be in a good position financially or we will find ourselves in not such a great position with money. Whether it is store cards or credit cards that you have had to utilize from Christmas or just to see you through these challenging times, it is important to remember you are not alone. There is no shame in having credit card debt. However, there are pitfalls that come with this debt unfortunately such as high-interest rates and fees. This is where you need to get smart with your debts. Consolidating your debt into one overall loan will not only lower the worrying interest rate you get thrown at you, but it will, in turn, allow you to save on your money each month and get rid of your debt faster!

Whether you are already a homeowner or looking to get on the property ladder, when it comes to debt consolidation advice I always look at the following straight off for my clients. The total amount of credit/store card debt they owe. The amount of interest they pay on each card each month and combine that total. Look at their current credit score to make sure there is leeway for consolidation. Lastly, if they are a homeowner, I look to see whether they currently have equity in their home. Only then, can we move forwards. Here are my top 3 tips to getting smart with your debt.

1. Get a personal loan to consolidate debt into one lump sum

A personal loan is an unsecured loan with a fixed monthly rate that could help you pay off a credit card. The end goal here is to make sure that the interest rate on this personal loan is significantly lower than all your interest rates combined currently, otherwise nothing will be achieved in clearing the debt. If the interest rate on the new loan is fixed, this means the payment you submit every month won’t change. Whereas with credit cards, sometimes they can have variable interest rates that can change at any given time, thus making it harder for you to ever get in control.

Naturally, when you take out a personal loan your credit score is sure to increase. This is because it is considered a loan you will still be paying off in installments. Once you get in the pattern of paying off the debt quicker, you may find that your credit score improves over time. One downside is to consolidate your debt in this way, which may require you to have a very good/excellent credit score to begin with, so this all depends really on how much debt you are actually in. If you find yourself with 2 credit cards for example with relatively small debts on, you should be ok with approval of a personal loan.

2. Get a 0% APR Credit card and transfer the balance

0% APR credit cards are great for balance transfers. It means you don’t have to worry about an interest rate on top of monthly repayment. Credit cards that offer 0% often are only available for a set period of time such 1-2 years. So you want to make the most of your repayments within that timeframe, otherwise, the debt begins to rise again. You could even look to keep switching to 0% credit cards every time the promotional timeframe ends, so you don’t end up back where you started. Again, credit scores will factor in here about whether this is a good tool for you.

3. Utilising your home as equity

Lastly, if you are a homeowner, there is an option is to tap into the equity in your home. This will all depend on whether you or not you have sufficient equity in your home, to begin with. You can then use the proceeds to pay off high-interest credit/store card debt. With a home equity loan, the interest rate will be lower than the one you currently have on your cards. If your debt equates to more than £20,000 a secured loan against the house would be a better option compared to a personal loan. A secured loan is ideal for those with a poor credit score. It is very important to remember that a secured loan puts your home at risk if you default on any of your repayments.

I can help source the best course of action for you. Please feel free to get in touch!