The Consolidation Game
You don’t need to be an obsessive tidier to know that most things are better when they’re put together in one place. Whether it’s your Jimmy Choo collection, those mix tapes from your youth or your precious library of Mills and Boons, we all find life a little more relaxing when a bit of order is in place.
The same goes for debts, with lots of reasons why it’s great to consolidate and deal with debt.
Here are the main ones we’ve identified. Compiled into a neat group of seven, obviously.
High interest rates
One of the top reasons to consolidate is high interest rates. It doesn’t take a mathematical genius to figure out that a rate of 6% for a loan will mean less interest than a 12% rate on a credit card, for example.
It can often be cheaper to get a few high-rate credit card balances together into one loan at a lower rate. In fact, many loan providers can offer much lower rates as you’ll simply be paying off a debt and not using a complex (and expensive) financial transaction system that is ultimately funded by the card holders and retailers.
Annual fees
More and more credit card companies are reintroducing a relic from the early days of the industry; the annual fee. They have previously been able to cover their running costs in their interest rates they charge, but with those rates at record lows, rising competition and users demanding more for less, this is becoming more and more difficult for the poor dears. So if you’re facing the prospect of annual fees being slapped on your cards, maybe it’s time to consider a consolidation.
Carrots
The variety dangled in front of you to persuade you to transfer your balances to one credit card. Yes, it’s becoming more and more common for credit card companies to offer to reduce the combined balance if you transfer it to them. But when it comes to crunch, they won’t be doing it for the good of their health. Higher interest rates and hidden charges may well be used to offset their generosity, so beware those companies who come bearing gifts.
Bad credit
People struggling to keep up monthly payments will sometimes fall behind, affecting their credit rating which will ultimately make things more difficult than they should be. Tying up the loose ends into one loan means fewer chances to tarnish your credit record.
To cut monthly payments
When we add up what we’re paying to service each existing loan and credit card, there’s often not much left over. One payment towards a consolidation loan can often be lower than the combined outgoings for a spread of debts, leaving a little left over for the things that you may have cut back on to come in on budget each month.
Of course, this may come at the expense of time spent repaying, as many consolidation loans will be based on longer repayment period. But for many people, less financial pressure over a longer period is a preferable alternative to spending every spare penny each month.
To keep life simple
Staying one step ahead of multiple debts can be tricky and is most definitely time consuming. Depending on how many monthly payments you’re making, it can feel like a full-time job and it can be easy to miss a payment leading to extra charges, bad credit scores (yet again) and a general feeling that life is far too complicated.
To look forward to D-Day
That’s debt-free day to you and me. A single consolidation loan will, if payments are kept up, decrease over time to the day when it’s paid off and the borrower (if that’s their only debt) will become free of debt. Our old friends the credit cards, however, are often kept ticking over by minimum payments that just cover the interest accrued and don’t tackle the money owed. For many, this is the single best reason to consider consolidating and start making headway to the shore rather than treading water.
Image by Stuart Miles
