If your debts are rapidly spiralling and you think it’s difficult to gain control of your debt – there are many ways you can take care of them. Unfortunately, most of us have more debts than savings. So, when you witness such situations where you do not have much savings, you turn towards personal loans as they have lower interest rates as compared to other unsecured financial products. Whether you should borrow a new loan to repay the existing loans depend on the interest rates and terms that are available to you. In addition to that, you need to set a budget by clearly defining your financial goals and how you are planning to make the repayments on time to be on the right track.
When you consider taking out a personal loan, the rates of interest that lenders will offer you depends on your credit score. Borrowing a debt consolidation loan will help you save some money if the overall interest rate of all your loans combined is greater than the personal loan rate you have been offered. Also, you will be able to keep track of your money with a consolidation loan.
What is the Smartest Way to Consolidate Debt?
Borrowing money to pay off your existing debts will work only if you have a proper financial plan to support your actions. Consolidating multiple debts often help save some money as you do not have to repay multiple loans. Rather than repaying several debts, you have to repay a single debt against all of them. Here’s how you can consolidate your debts:
- Calculate how much you owe
- What’s your current repayment ability
- Make a way in between your budget to pay off debts
- Cut down expenses that are not essential
Borrow a debt consolidation loan only if you are sure about all the repayments. Ensure to make all the repayments on time and in full if you want to stop juggling between debts.
Is it Possible to Pay off a Debt without a Personal Loan?
The answer is yes. You can also repay your debts without borrowing a new personal loan. If you have enough savings or you have some extra money left at the end of each month, you can use it wisely to repay your debts. Listed below are a few ways that you can adopt to repay your debt without taking a personal loan:
- Ask your friends and family for monetary support
- Contact your credit card provider for a balance transfer option
- Discuss your situation with your employer and ask for a payday advance
How your Credit Score is affected by your Debts?
Try to keep your debt levels low and affordable. Your credit score follows an upward trajectory when you make all the repayments of your debts on time. The smartest way to consolidate your debt is by taking a loan to merge all your current debts. However, it is not certain that you will pay off the debt by combining all your debts. You need to manage your debts responsibly. Pay attention to minute things that may create a huge impact on your score. Your credit utilisation ratio and payment history play major roles in shaping your score.
Whether you should borrow money to pay off your existing debts depend on your financial circumstances. Taking on a new loan means a new responsibility. You need to be very strict with your money if you want to pay off all the debts that you have accumulated over the years. If you are not sure about a debt consolidation loan, you can reach out to organisations that provide free debt advice online like Money Advice Service. Do not decide in haste as it may lead to further debt traps.