Managing more than one debt, whether you’re paying off personal loans, credit cards, store cards, or other types of borrowings, can be a real challenge. It means different repayments to be paid at different times and with different interest rates and lenders.
Consolidating your debts into one loan, with one repayment and interest rate, can make managing your finances a lot easier. But how do you go about doing it?
Step 1: Identify the debts you want to consolidate
Depending on your financial goals, you may want to bring all your debts together under one single loan, or just some of them. Once you’ve decided which debts to include, you’ll be able to work out how much you’ll need to borrow and what type of loan might work best.
At the outset, it’s important to consider whether consolidating your debt is a good long-term solution to getting on top of your debt. How much are you going to save on fees and interest by having one loan and one repayment? Are there ‘break fees’ associated with paying out your existing debts early? Will you be able to afford the repayments on the new loan?
Getting financial advice can help you answer these questions and explore all the options available to you.
Step 2: Find a new loan that works for you
If consolidating your debt into a new loan is the option that works best for you, you’ll need to decide what kind of loan will suit your needs. This will depend on things like:
- How much debt are you looking to consolidate/what amount will the new loan need to be? (Many loans have a minimum or maximum amount.)
- Do you want a fixed or variable interest rate?
- Are there establishment or ongoing fees to be paid?
- Are there extra features to help you get on top of your debt sooner, like being able to make extra repayments without penalty?
Step 3: Make an application
Applying for a personal loan to consolidate your debt is a similar process to any other loan application. But in addition to the standard information you need to fill in, you’ll have to provide extra information about your debts. Specifically, you’ll be asked to provide:
- Details of which of your debts you want to consolidate.
- Documents relating your existing debts (loan statements, credit card statements etc).
- If your loan is approved, you’ll need to give instructions about your existing debts and what financial institutions they’re with so that your new lender can pay them out.
Step 4: Move forward with your new consolidated loan
If it’s approved, your new loan will be funded and your existing debts paid off. From this point on you would have one loan, with one repayment amount, and one interest rate.
This can be a big moment of relief but it’s important to stay on top of things and communicate with your lender if your circumstances change or you experience any difficulty making your repayments.
If you’re interested in finding out more about your options for simplifying your finances and potentially paying off your debt sooner, take a look at our range of personal loans.View personal loans
Important information: Please note that this is only intended as a general guide in relation to issues you may want to consider when consolidating your debt. It is not intended to be an exhaustive list of all relevant issues and you should take into account your own particular circumstances, and obtain independent expert advice where needed, before proceeding.