*Representative Example £3,000 over 3 years, representative 48.9% APR fixed. Monthly payment £145.17. The interest is 10% per annum fixed and service fee is 30.48% per annum fixed. Interest payable £549.95 and service fee payable £1,676.17. Total repayable £5,226.12
Having debt is not something that we expect to become part of life when we move into adulthood, but for many of us it soon becomes apparent that it’s one of those little things which is always there, or at least always an option. For that reason, it’s important to know how to deal with debts and how our handling of them can affect us in all kinds of ways.
Unfortunately, understanding of debts, credit and the jargon that comes with these things is not great across the board, which is why some people may get into difficulty. Schools are only just starting to teach general money management and banking as part of the curriculum, so in many cases there’s a large gap in knowledge when it comes to borrowing money. The majority of those who were not taught how to manage cash at school or by parents up to a standard where they can look after their cash properly have learnt by trial and error, using common sense and getting advice from friends, family or online.
Debt consolidation is something that should be known about and utilised by many people, as it can make your debts more manageable and help you to keep on top of repayments if you feel you have too many smaller bits of credit which are difficult to keep track of. A debt consolidation loan covers and pays off multiple, smaller debts and can be paid off in one manageable monthly payment. You have a variety of options available to you, which we’ll explore below – from credit cards to guarantor loans to debt management plans.
The key to managing any type of debt and a useful thing to do before you embark on debt consolidation is the understanding of your personal finances. This means having a good idea of what is going in and out of your bank account each month, the amount you need to spend on essentials and how much you owe to whom. If more than one of you is responsible for finances in your household or brings in money to the home, then it may be useful to set aside some time to sit down with them in order to better understand what’s happening money-wise.
If you can, it’s always handy to collect up any records of bills, credit agreements and bank statements in order to work out what must be paid and when. Starting with a household expenses list is a good idea. Before you do anything else, find out how much money you need each month in order to get by with the basics. This means listing important outgoings like rent/mortgage payments, utility bills, credit payments (such as guarantor loan payments, credit card instalments etc.) and car/basic food costs. Always round up or take the higher average amount so that you’re not leaving yourself short, and add up everything in order to get a total. This is your basic outgoing figure.
Next, you can work out how much money comes into your household and when can help you to match up the different outgoings and give you a sound idea of how much money is surplus (money which you can spend how you please). Knowing all this information will set you in good stead and help you to work out where money may be being wasted or not used properly, allowing you to tweak your budget and work out whether debt consolidation is the right thing for you.
There are many ways in which you can go about debt consolidation. There are a number of companies out there specifically focussed on consolidating debts – you may have seen adverts for them on daytime TV – but they tend to come with expensive fees and may not always be the cheapest option, no matter how it may appear in their advertising campaigns. For this reason, it’s important to do plenty of research and fully cost out a scheme like this before jumping in head first – you may find that there is a cheaper alternative elsewhere.
Guarantor loans are becoming an increasingly popular choice for debt consolidations, especially now that many lenders are raising the amount you’re able to borrow. With Guarantor My Loan, one of the main guarantor lenders operating in the market, you can borrow up to £5,000 and pay it back over a number of months to ensure manageable payments. An amount like this may help to clear credit card or payday loan debt which may be costing you more than you initially thought.
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Bad debt can be as simple as taking out credit for something non-essential and not worth it. You end up paying more back than you borrow no matter where you borrow from, so asking yourself whether the reason for your credit is worth it is an important first step. Any very expensive debt which is difficult to pay off in the time frame or which leaves you in the red each month should also be avoided.
When looking at consolidating debts, it’s important to understand what is meant by ‘good debt’ and ‘bad debt’. There is no clear cut rule as to which credit products are ‘good’ or ‘bad’, as it depends on each individual’s circumstances, but there are easy questions you can ask yourself in order to get a good idea of whether your debts are worth paying off quickly or not (‘bad’ debts are always worth getting rid of as quickly as you can).
Sometimes credit cards themselves are a good way to consolidate debts, but this can only work well if you have a good credit history in the first place. If you do, you may qualify for a 0% interest card, which you can transfer your debts to and pay off in a more leisurely manner without incurring any more interest. For those who don’t have an excellent credit history, the guarantor loan option may be the wiser and cheaper choice – depending on your individual circumstances, of course. The sustained regular payments that come with guarantor loans will help to bring positive information to your credit file, making it easier and cheaper for you to borrow money in the future.
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