If you’ve got into debt, you’ll know that it can be incredibly stressful. Debts can easily get out of control if you can’t keep up with your payments, and it can be easy to lose track of what you owe to who. If your debts have got into a mess, you could take control again with a debt consolidation loan.
Debt consolidation is debt refinancing. One loan is taken out to pay off multiple other loans. If you’re not sure about them, these loans can be a little confusing. If you’re trying to live a debt-free life, make sure you understand this option before deciding on it.
Will a debt consolidation loan damage my credit rating?
No. As long as you can keep up with the agreed repayments every month, debt consolidation loans don’t hurt your credit score. Make sure you don’t miss any payments, however, as this will damage your credit rating and make the problem worse.
What if I really can’t afford to repay any of my debts?
If you really can’t manage to pay off your debts as they are, borrowing more money is not going to solve the problem for you. Instead of taking on more debt, reach out to a debt expert or a debt support charity. They can talk you through your different options and help you find a solution to manage the debts that you can afford, without getting into a further mess with your money.
How much does a debt consolidation loan cost?
The cost of a debt consolidation loan will vary. The cost depends on several different factors, including how long you want to take the loan out for, set-up costs, the interest rate, and your credit rating.
Look for a loan with a low-interest rate to keep the costs down. This can help, but will often mean you have to secure the loan against your home. If you do this, don’t get behind in your payments, as this can put your home at risk of being repossessed.
Can I consolidate my debts with a credit card?
A 0% APR credit card can be used to consolidate other credit card debts and could include some other debts as well. You will need to pay a fee to transfer the existing balance of your cards onto the new card, but it can save you money in the long-run by moving your debts off cards with a higher cost. An interest-free introductory rate is ideal, as debts moved onto the card won’t increase during this period.
If you have a card like this, aim to pay off as much of the debt as you can while this interest-free period lasts to get the full benefit and save yourself a lot of money. The more you can pay off interest-free, the better for you. If you can’t pay off the entire debt in this period, at least pay off as much as you can afford.
Check out the EP Wealth website for business owner-specific advice on this topic.