A Beginners Guide To Debt Consolidation


Debt consolidation can be a positive thing in your life. After all, if you want to make sure that you are managing your money in a sensible and responsible manner then consolidating your debts could be just what the doctor ordered. If you are keen to ease financial burdens and you amassed a lot of debt, it may be worth looking into how you can consolidate your loans. After all, the emotional impact of debt can be as damaging as the financial impact.

For many, they are keen to make sure that you are taking positive steps into leading a healthier financial lifestyle. You may want to know more about debt consolidation and how it can help you.

Here, we will go in baby steps and cut through the financial jargon. Sometimes, a no nonsense guide to debt consolidation can take the stress out of managing your financial processes.

Let’s delve into a beginners guide, ignore the financial terminology and start making sense of your money.

Debt Consolidation 101: Separating Fact from Myth

Sorting out your debts means that you may have to consolidate them into one monthly repayment. If this applies to you, you will consolidate your debts by using an intermediary company. This can be a third party. Some people opt to use external, independent financial consolidation loans. Others prefer to seek assistance from their local bank.

Usually, a person will seek out this kind of loan if they have a lot of debt from a wide number of different creditors. Dodging phone calls, answering a bout of letters and a wide range of different communication methods from these creditors can leave people feeling anxious and stressed. If you feel that you are being bogged down by debt, you need to talk to a loan consolidation company. They will act on your behalf to negotiate with lenders and determine your payments.  They can negotiate on interest fees and the timeliness of when the loans need to be paid. There is a great advantage to this as it can reduce your overall debt, but it can also ensure that you are in a great financial situation overall.

Sorting Out Your Debts

So, now you have the lowdown on debt consolidation loans you need to figure out whether this is the right option for you. Now is the time to figure out your existing debt and what you need to pay back.

Debt can have a wide range of different financial terms. The most obvious is ‘debt’ but liability, obligation and financial commitment are often bandied around when talking about loans and debt. If these are used on your agreements and letters, they all mean the same thing: debt.

Take out your documents and see what you owe. This is the simplest way of figuring out your initial debt. Let’s face it, if you don’t know how much debt you are in from the onset, you are likely to end up in trouble. Economically speaking, you need to have a working knowledge of what you owe.

Now is the time to look at your bank statements. Highlight where your debt is going and at what time of the month. Take a look at the payments. Are they the same every month or do they differ? Bank statements, rather unsurprisingly, can offer you more clarity on your current debt.  This means that you will have more ‘real’ information to work with. What’s more, if you do device to use debt consolidation, bank statements are a great auditing tool to have in your working arsenal.

Credit Reports

Once you have assessed your debt and bank statements you need to make sure that you have a copy of your credit report.

There are three main credit reports that are used in the UK:

  1. Experian
  2. Equifax
  3. Call Credit

These credit reports can give you a good idea of your current debts and financial history. By obtaining these reports, for a nominal fee, you can have a clearer understanding of your debts and what you need to do to fix your credit history. Of course, your credit report may be perfect. If this applies to you, carry on as you were. As the adage goes, if it’s not broke don’t fix it.

But, if you have discovered a chequered debt history, it’s time to start being a grown up and taking the helm of your finances. You can do this via the debt consolidation route.

Assessing the Need for Debt Consolidation

Only you can make a judgment call on whether you need to consolidate your debts. At the risk of sounding blasé, you will know when the time is right. If you cannot manage, track and control your finances, you will know that the time is right to consolidate your debt.

Let’s take a look at some typical factors that contribute to the need for debt consolidation:

The inability to meet minimum payments: if you have lost your job, or you are simply unable to make the minimum repayments to a wide range of creditors, you will need to seek out debt consolidation advice

Avoiding correspondence from your creditors: should you be avoiding, ignoring and monitoring your calls, letters and emails from your creditors, it’s certainly time to look at your debt consolidation options.

You cannot make sense of your debt: in short, if you don’t know where your money is going and you have no idea how you will pay for your debt, it’s time to look at debt consolidation loans.

Your debt to income ratio is unequal: if your debt to income ratio exceeds more than what it should, you may need to consider looking at your options. For example, if you owe 60% of your take home pay in loans, you certainly need to look at consolidating your debts.

The Final Word on Debt Consolidation

Okay, so this may not be rocket science, but if you are in a lot of debt, finding a way out can be tough. With this in mind, it’s time to start looking at your options. You can ease your financial difficulties, but ultimately reward yourself with a greater peace of mind. Make sure that you are getting your finances back on track and being responsible regarding your financial affairs. A debt consolidation loan could be just what you need to make your finances more bearable.