A Step-by-Step Guide to Debt Consolidation Through Refinancing
Debt consolidation is an effective way to merge multiple debts – including credit card, personal loan, and car loan debts – into one single monthly payment, with just one interest rate.
Instead of having to deal with several types of debt, each with their own payment amount, interest rate, and timeline, a debt consolidation strategy makes your debts easier to manage. Debt consolidation rolls all your debts into one payment, so you only need to remember to repay one single monthly amount. Taking this approach can also help lower the overall amount of interest you pay and increase your odds of repaying your debts on time.
Of course, given how complex debt can be, debt consolidation loans for bad credit are not a ‘quick fix’ solution that will make the problem go away. You will need to recognise the habits that have resulted in debt and adopt new spending strategies to maintain a healthy account balance.
What is debt consolidation?
Debt consolidation is the process of merging multiple debts into one single monthly payment, typically with just one interest rate. Many find it easier to manage one repayment, which in turn may reduce the amount of interest and account fees you pay. This strategy may help you clear your balance sooner. Regularly meeting your repayment obligations can help improve your credit score, increasing the chances of successfully securing a loan in the future, after all debts are paid.
What types of debt can you consolidate?
You can typically consolidate any type of loan, including loans that have assets tied to them as security.
For example, if you are repaying multiple loans, such as credit card debt, personal loan debt, and a mortgage, you can consolidate all these debts into one single monthly repayment to make them easier to manage.
Whether or not you can consolidate both secured and unsecured loans will depend on your financial circumstances. If your debt management firm or creditors deem you unfit to consolidate certain type of loans, they will let you know in advance. From there, you can seek expert confidential advice and support to pursue other viable means of debt management.
How does debt consolidation work?
The first step to debt consolidation is to approach a debt management firm, lender, or your local bank.
While approaching your lender or bank is a viable way to consolidate your debts, if you have debts tied up with multiple creditors, a debt management firm will be able to negotiate with creditors on your behalf and secure a debt consolidation plan that best fits your needs and budget.
A debt management firm will also recommend strategies to help reduce the amount of interest and account fees you pay. For example, they can help you avoid paying (or pay less) account exit and account set up fees, and they can extend the lifespan of the debts so that you have more time to pay them off comfortably.
After your lender or debt management firm thoroughly assesses the nature of your debt and your financial circumstances, they will propose a personalised debt consolidation plan that works for you. They can also close your accounts as you pay off each debt, to avoid the risk of falling back into debt.
If you have one or more credit card debts, your debt consultant may be able to transfer your debts to a new credit card, one with a zero-interest introductory period. This can help eliminate your interest entirely if you pay off the debt within the introductory period.
Need more help?
Dealing with multiple debts at once can be stressful. If you have several debts and are struggling to repay them, keep in mind the number of free resources available to you including the National Debt Helpline. If you require more personalised support and advice, perhaps a debt management firm can assist you.
