How Do I Consolidate My Debts?

In many ways a better question might be ‘should I consolidate my debts’, rather than ‘how do I consolidate by debts’. Debt consolidation is a relatively straightforward process in itself, made as simple as possible by the loan companies who are eager to offer you a loan. However, before you concern yourself with the process you may wish to take a moment to make sure that debt consolidation is actually the best solution to your problem.

Debt consolidation is about taking out one big loan to pay off all your existing debts, leaving you with one single, easy to manage monthly payment to worry about. The clear advantages are the practical one of making life easier (you no longer have to keep track of all your different debts and creditors) and the apparent saving on monthly payment which are probably lower than your old combined debts.

You just need to look a little deeper though, to be sure you really are going to be better off. There is no arguing about the simplicity offered by consolidation and that this is definitely a benefit in terms of time and effort. But that relatively modest benefit is only worth it if you are also improving your overall financial situation. The thing to look out for is how much you will be paying back in total through your new loan, compared to how much you would have paid back in total through your old debts.

The reason I say ‘in total’ is because your debt consolidation loan is likely to be spread over a much longer period than most of your old debts were. Despite paying slightly less each month under the loan, the fact that you are still going to be making those payments well past the time when your old debts would have been settled means that by the end of the loan you may have actually paid far more than you would have if you hadn’t consolidated your debts.

So the question of how do I consolidate my debts has a pretty straightforward answer – you work out the total of all the debts you want to pay off, and you apply to one of the thousands of lenders who offer consolidation loans. Actually you should get quotes from several, as interest rates will vary a lot. When you know what interest rate lenders are going to charge you for a consolidation loan, you should then look again at your debts and select only those for which you are paying a higher rate of interest than the loan company is offering.

Better than that, though, is to give serious consideration to an alternative way of getting rid of your debt, which does not involve borrowing more money or paying anyone else for their help. The most effective long term solution to debt problems is to re-negotiate repayment terms with your creditors yourself. That may sound easier said than done, but it is a tried and tested solution and you can find free detailed guidance online.

Be careful not to jump straight into debt consolidation just because it is convenient. Work out whether you will actually be any better off in the long run, and don’t be tempted to automatically consolidate all your debts. Check the interest rates on your existing debts and choose carefully which debts you include, and always shop around.