Do you find dealing with too many debts at once a hassle?
You are not alone. Every month, you face liabilities like bills, rent, debts, etc. Moreover, emergencies make a surprise entry to your limited purse. It further impacts your potential to clear the monthly instalments. Consequently, it attracts additional costs like- penalties.
This put your financials to a standstill.
Moreover, this debt trap impacts your future and short-term goals. You find it hard to save for your immediate goal, like- repairing or replacing the car seat covers.
Individuals seek the best solutions to debt management. One such way is – consolidating debts. You can manage debts well by merging your high-interest debts into one monthly payment. It helps you reduce the interest rates and monthly commitment towards the debt. Additionally, it grants you the flexibility to save money and use it for the next big goal, like – changing car seat covers.
There are multiple ways to consolidate debts. You can do this by transferring your balance to a balance transfer card, debt consolidation, or personal loan. The blog discusses the best ways to consolidate debts with a personal loan.
What is the difference between debt consolidation and a personal loan?
A debt consolidation loan is a type of personal loan. Most individuals use these terms interchangeably. However, these vary largely. Both are fixed-rate monthly instalment loans with a set monthly payment:
Personal loans are used for a variety of purposes, including debt consolidation. It implies the usage of personal loans is not limited to debt consolidation. You can use it for other things like- renovating a home, car repair, paying examination fees, etc. The terms and payments stay the same for the period.
Debt consolidation loans
Debt consolidation loans are strictly for consolidating debts. You can consolidate if you have 3 or more debts in your profile that you find hard to manage. Afterwards, you pay only a single payment to a lender. The lender decides the total amount by calculating the interest rates, loan terms and borrowed amount. He provides an amount lower than what you initially pay. Individuals usually use it only to reduce their liabilities towards debts.
How do personal loans help consolidate debt?
A personal loan works for nearly everything. You receive an amount as a loan and pay it in instalments or monthly payments. These loans are not backed by collateral or are unsecured. It is the reason personal loans have competitive interest rates. Moreover, the credit qualification requirements stay stringent for some time.
Using a personal loan to consolidate debt implies paying off your credit card debt, unsecured loan debt and bills. It helps you ensure a manageable plan towards your loan each month until you pay it off.
Apart from saving you money on interest, personal loans keep your accounts in good standing. Moreover, it helps you prevent your credit score from the impact of multiple debts in your credit profile. It is because missing a payment or defaulting on any liability impacts your credit score. Consequently, you struggle to get an affordable loan for your needs.
It is thus essential to re-align your finances and safeguard your credit score to achieve your lifestyle goals hassle-free.
5 Step-wise ways to consolidate debt with a personal loan
Consolidating debts with personal loans grants you the flexibility to choose the repayment tenure. It helps you plan your payments and budget before the due date. It is one of the best ways to improve your credit score as well.
With the best personal loans in Ireland’s marketplace, you get the flexibility to re-schedule payments, halt payments and extend the repayment term. It prevents one from defaulting. Moreover, it preserves his best financial interests and helps him achieve other life goals without worries. Here is the process to consolidate debts with a personal loan:
1) Identify the debts to consolidate
The very first thing to consider is to analyse the debts to merge. It is challenging as merging all debts would not be beneficial. Instead, check the high-interest-consuming debts and calculate the total amount. However, pay attention to bad debts like payday loans, credit cards, and short-term debts instead of good debts like student loans to consolidate initially.
2) Explore the best personal loans
After knowing your debts and listing the costliest debts impacting your monthly income, explore personal loans. You cannot just jump on the first one to encounter. Instead, identify the loan quotes, APR, interest rates, and additional costs before choosing or shortlisting some.
You can also check the loan costs by using a loan calculator. It will help you fix the costs and the affordability measure hassle-free. Using a loan calculator does not impact your credit score. Instead, it is an easy way to know approximate costs.
3) Improve your credit profile
Analyse your credit score and improve it before applying for a loan. Check the delinquencies like paid debts, double entries in your credit report, and inform the credit agency. It will help you boost your credit score. Additionally, optimise your credit score by paying some of your debts. Check the affordable ones to pay. It must not impact your budget.
4) Apply with the best personal loans
After paying off some debts and taking measures to improve your credit score, apply for personal loans, check APR, interest rates, additional costs, prepayment fees, penalty fees, and other costs before applying. Enquire about the additional jargon or information before proceeding further with accepting the loan offer. If you find the loan a little costly after added fees and other aspects, switch to the next best option and get the loan quote.
Alternatively, you can also get personal loans for a bad credit score. You must have sufficient income to afford the payments. If your payment slips and bank statement reveal the potential, you may get a personal loan for a bad credit history to consolidate debt.
5) Pay the dues in instalments timely
Lastly, you must maintain regular payments towards the debt. After the loan sanction, you can see an immediate jump in your credit score. Identify the monthly repayment amount and budget for it. Plan the expenses you must cut to save enough for repayments.
Using a personal loan to consolidate debts can be a smart choice if juggling too many debts. It will help you manage other lifestyle aspects better. Moreover, consolidating is one of the best ways to re-track finances and manage debts well. Check the loan costs and fees apart from other things. It will help you ensure a feasible loan without worrying about losing finances.
James Wince is the lead author and financial expert at MyLoansBoat. With a decade-long journey in the financial market, he has actually amassed comprehensive understanding and hands-on experience, which he gives his informative, useful, and reader-friendly posts. Covering a broad spectrum of financial subjects – from personal loans to business financing, mortgage refinancing to debt consolidation- James has an incredible capability to break down complicated financial lingo into understandable language, permitting readers to make knowledgeable choices. Enthusiastic about financial literacy, James’s objective is to browse our readers through the frequently frustrating seas of finance.