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Home > Benefits of consolidating your debts

Benefits of consolidating your debts

7th January 2016 | Published by Evo Money

Being in debt can be one of the most stressful things in people’s lives. Most of us will move our debts around to try to gain the best rate, all the while trying to pay off as much as we can. Unfortunately, though, it seems that before we get ourselves straight, something else always comes along — perhaps a home emergency, an unexpected problem with the plumbing or a broken-down vehicle.

All of these can lead to a necessity to borrow more money on a different credit card or by taking out a loan. Whilst aiming to get the best rate of interest on the money we owe, we can often cause ourselves confusion and even additional expense.

At the very least, monthly repayments can end up being more than we need to pay, and in some instances more than we can afford. This can lead to people living hand to mouth just to keep up with repayments, damaging their quality of life.

One possible solution is to consolidate existing debts into a single, more manageable payment each month. Both homeowner loans and debt consolidation loans can be useful for this purpose, allowing you to budget more effectively and avoid getting into further debt in the future. It can also simplify your finances.

Another advantage of consolidating your debts is for your own peace of mind in terms of knowing exactly when you will become debt-free. Someone who has debt on an overdraft, a loan, a store card and a credit card will be making four payments per month and these are likely to be at the minimum amount. This means that you are only paying off a tiny bit each month and the rest is going on interest, so the light at the end of the tunnel when it comes to paying off those debts can seem a very long way away. If another sudden need for cash comes up, you could well end up with a further debt. It could then be a slippery slope to defaulting on one or all of those payments.

Consolidation through the means of homeowner or debt consolidation loans allows you to deal with just one creditor each month and make a single payment. This single-payment approach will allow you to better budget for your monthly outgoings. You will know exactly how much money will leave your account on each day of the month. You can then sit down and draw up a list of the amount of money you have available and the things that you need for the month, safe in the knowledge that there won’t be any unexpected surprises when it comes to your repayments.

There is also the psychological motivation associated with a single loan to consolidate your debts. When you consolidate, the lender will tell you how much you have to pay per month and for how many months. This will give you a very clear idea about the day when you will completely pay off that loan. This is a massive motivator to keep up your repayments and not get into more debt. You can even mark on the calendar the date when you will no longer be paying out towards debts each month. Think how much money you will then be able to save, or even just spend on enjoying yourself without having to worry.

The other idea of debt consolidation is that, in total, you end up paying less interest. You should find a loan at a lower rate than your existing credit, ensuring that you are not paying over the odds for the simplicity of a single payment. Monthly repayments could be reduced through this alone, but by spreading out the repayments over a longer time period, you can further reduce the amount that you will be required to pay each month.

Category: Money
This post was written by Evo Money
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