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Debt consolidation is only worthwhile with good money management

Debt consolidation can be a great way of taking control of your finances and helping yourself to getting out of debt. Proactively tackling your debts can put you back in charge of your money, help you to simplify your debts and reduce your outgoings.

However, debt consolidation is only one part of a bigger process to get out of debt. It’s not a magic bullet that will solve your problems. Getting out of debt requires a combination of debt consolidation, dedication, organisation and good money management. If you don’t manage your money carefully once you have consolidated your debts, you could end up in a similar position again.

The benefits of debt consolidation

If you have a number of credit cards, store cards, personal loans or overdrafts then you could be paying a significant sum in interest every month. You may also be paying out more money each month than you can realistically afford.

A debt consolidation loan allows you to repay these smaller debts in full. Instead of lots of high interest debts, you are left with one larger, affordable monthly repayment.

There are a number of reasons why debt consolidation can benefit you:

  • It can save you money – interest rates on debt consolidation loans are often lower than on other forms of borrowing. This is particularly true of secured loans where the lender takes a legal charge over your home as security for the loan. A lower interest rate mean you will pay less

  • It can reduce your monthly payments – instead of paying lots of small monthly payments to various loans and credit cards, a debt consolidation loan leaves you with just one payment. And, as you can choose the loan amount and loan term, you can tailor the payments to your monthly budget, making each payment affordable

  • It can simplify your finance – instead of having several debts, several payment and several payments, a debt consolidation loan can help you to take control of your finances. You will have just one creditor, one payment and one direct debit

While there are many reasons for you to consider debt consolidation, it won’t work on its own. You also have to take positive steps to control your money, as we see next.

Why you also need to manage your finances carefully

While debt consolidation can help you to get your finances in order, it is not a simple answer to your problems. You also need to make sure that you manage your money carefully.

For example, you may need to change your spending patterns or reduce your expenditure. Why did you get into debt in the first place? If you consolidate your debts and then continue to spend in the same way, you could find yourself back in the same situation several months down the line. Once you have consolidated your debts you’ll need to be proactive to make sure that you don’t end up with credit card or loan debts again.

In addition, you will need to carefully manage your money to ensure that you can pay your debt consolidation loan on time every month. Many debt consolidation loans are taken out on a ‘secured’ basis, meaning that the lender takes a legal charge over your home as security for the loan.

If you don’t make the payments to your debt consolidation loan then you will find that your home may be at risk. So, unless you manage your money carefully, your debt consolidation loan could end up costing you your home. That is why it is vital that you not only consolidate your debts but take positive step to keep control of your money once you have done so.

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