The new year is here, and that means one thing. Soon people all over the world will be making resolutions, promising to be healthier, to exercise more, eat less, and generally get their life into better shape.
So, when it comes to getting your life in order, one of the most important things is regaining control of your finances. Taking charge of your cash flow and outstanding debts is one method to accomplish that. Look at all of your existing loans, credit cards, and other obligations and combine them into a single payment to help you organise your life for the future. This process is called debt consolidation and it might be the key to helping you get ready for the year ahead and hit some financial goals.
What is a debt consolidation loan?
Debt consolidation, in its simplest form, involves combining multiple debts into one single debt. It is when you take out another loan (typically with a lower interest rate) and use it to pay off several other debts. This way, your payments will be consolidated into one monthly payment.
It is designed to make debt repayment easier, and perhaps even less expensive for borrowers to pay off their debts. Debt consolidation loans are often used to combine high-interest types of debt such as credit cards, home loans, and personal loans into one monthly payment.
How do debt consolidation loans work?
Debt consolidation loans are issued by financial lenders (such as banks, credit unions, and other organisations). Once the amount of the loan and payment schedule is set, the lender will issue you the entire loan in a single lump-sum payment. You then use that lump sum to pay off your outstanding debts, leaving only the debt consolidation repayment left.
The main benefit of a debt consolidation loan is the convenience of one monthly repayment – meaning that you do not have to track multiple statements, payment dates, and payment accounts. A debt consolidation loan can also potentially save you a considerable amount of money in the long run – as paying each higher interest loan separately can often cost you a lot more money in the distant future.
However, it is important to remember that debt consolidation loans are still a loan – a form of debt. You will need to remain vigilant to ensure that you can handle your consolidated debts responsibly and not slip back into financial trouble.
Are there other debt consolidation options available?
There are, of course, other forms of debt consolidation available in the market. From a financial perspective, another option is a balance transfer on your credit card. A balance transfer can allow you to transfer the balance of an existing credit card to one with a low (potentially zero) interest rate. However, this doesn’t come without risk and always recommend reviewing the risks associated with an option.
Regardless of which debt consolidation option you choose to move forward with, you should remember that the key to getting out of debt is frequent and on-time debt repayments. Though it might seem like you have a mountain to climb at first, you will soon see your balances move closer to zero as your overall financial picture continues to improve.
If you would like to learn more about debt consolidation loans or would like to discuss your available options with us, speak to one of our friendly experts at GA Finance today.
Other tips you might consider while trying to save and reduce your debt:
- Cancel your unused subscriptions. Remember that online subscription you signed up for at the beginning of the year? What about the streaming service you never watch or the magazines you rarely read? Cancelling unused or unwanted subscriptions is a great way to start the new year, and it will surely put more money in your pocket.
- Negotiate better rates with your phone and internet providers. You have more negotiating power than you think, so why not use it to get lower rates? Spending some time on the phone could give you savings all year long.
- Pick one high-interest debt and work on paying it off. If you’re having trouble paying off higher-interest debt, don’t rush yourself. Select one bill to pay off completely during the next year.
- Create a household budget. Having a household budget is essential, and now is the time to create one. If you already have a budget in place, you can fine-tune and improve it for the new year.
- Challenge yourself to save more. If you want to build wealth, spending below your means is the key to success. Challenging yourself to save more every month is a great way to enter the new year.
Whether you make formal resolutions or not, January is the perfect time of year to start forming healthy financial habits. Whether your goal for the new year is to save more money, improve your credit score or just feel better about your spending, the tips listed above can help you get started.