According to a poll carried out by The Independent, the most popular new year’s resolutions for 2013 was to save more money, closely followed by getting out of debt; two things that could actually go hand in hand.
Debt can come in many forms, although it is often seen on credit cards, personal loans such as guarantor loans, logbook loans and payday loans and even utility bills.
We’ve investigated the benefits of consolidating debt and how it could save you money:
1. Save on Interest Charges
If you have large balances on multiple credit cards then the interest that you are being charged on a monthly basis is going to hurt your finances. For example; if you have £7,000 worth of outstanding balances on credit cards with an APR of 16.9% then over the course of 22 months you will pay over £2,300 in interest. By moving this debt over to a 0% balance transfer card or a low rate personal loan you will save a large chunk of this interest.
One of the main aims of a debt consolidation program is to organise debt into one monthly repayment whether that’s in the form of a credit card or personal loan. Often when you have multiple repayments being debited from your account at different times of the month it can be tough to keep track of your finances. Ensuring that you know exactly how much is being debited from your account and the exact day it is being taken will give you more control over your finances.
3. Improve Credit Score
Having large outstanding debts on credit cards and late payments on loans will lower your credit score. Paying off debt will slowly improve your score and ensure that you are no longer late with your repayments.
4. Late Payment Fees
Often if you are late in paying a credit commitment, late payment fees and charges will be attached to your account. These charges will differ in value depending on the provider you are in debt to and the size of the balance. Whether you choose to consolidate debt by using a personal loan or a balance transfer credit card always set up a direct debit on a day that suits you (i.e. payday) to ensure that the funds are always in your account.
5. Debt Free Faster
Often the first port of call for those who have large amounts of credit card debt is to set up a minimum repayment scheme with the provider. The problem with this is; although it may feel like you are chipping away at the balance, the reality is that interest is being charged at a similar rate to your repayments meaning it will take years and even decades to get debt free.
As you may have noticed I have been discussing two main methods of consolidating debt; low rate personal loans and 0% balance transfer credit cards.
Balance transfer credit cards work on the basis that you are charged no interest for a set period of time (ranging from 6 to 24 months) and the idea is that you pay the debt off within this time period to avoid any interest charges. Balance transfer card providers simply charge a small transfer fee which is usually around 3% of the total balance.
Low rate personal loans are seen as a very straight-forward way of consolidating debt as they organise your debt into affordable monthly repayments. As the applicant you are able to choose exactly how much you borrow and the term you wish to borrow the loan over. Naturally, the interest rates are considerably lower than those charged by credit or store card providers.
Choosing the option that suits you best will depend on your circumstances, please note low rate personal loan providers will require applicants to have very good credit histories so be wary of the criteria prior to making applications in order to avoid disappointments.
Author Bio: This article has been written by Jason Scott on behalf of UK Credit Limited. Jason invites you to read more money saving tips and tricks at https://www.guarantorloansonline.co.uk