To consolidate or not to consolidate?

Thinking of getting a loan to consolidate all your debts? There are a few points for you to consider. In the first instance, take a look at your spending and see if there are any areas where you can budget, or cut down. Are you spending a lot of money on lunch and frivolities? If you curbed your desires just a little bit and managed to control your spending, would you be able to save a little more? Increase your debt repayment?  How much of your outgoings are essential? If you find you have some money to play around with, focus on increasing the amount you pay on your biggest loans.

Look for different loan rates and APR available from different lenders. Compare online offers from lenders, your own bank and credit unions. Use price comparison websites but also cast your money net wider than this, as often those sites do not cover all the options out there. You might even have overlooked a friend or family member who would be willing to lend you money at low or no interest.

Get hold of your credit rating from Experian or Equifax. Ensure that it is accurate. You may find you actually have quite a reasonable credit rating. You could negotiate with your creditors a lower re-payment interest rate, or, if you are looking at consolidation loan companies, negotiate with them.

Read the terms and conditions or contract of the loan carefully. And read them again. And then read them again Don’t just tick the box. Are there penalties if you re-pay you loan early, for example?

Check out the monthly repayments and how this compares to other finance deals on offer – but do not use this as the overall deciding factor. Consolidation companies may offer a low monthly re-payment but over a much longer period of time: 60 months, 72 months, 120 months.

Look out for how much you may have to pay for a consolidation loan, including interest, upfront and recurring fees, or any closing costs. You may feel more organised by having one monthly re-payment, but if your overall payment actually turns out to be higher, you would be financially better off by not consolidating. Only think about consolidating, if you benefit from a substantial financial reduction, rather than merely a lower monthly repayment.

Should you consolidate your loanCheck that you are getting what you pay for. Is the finance firm offering a debt consolidation service, a debt management service or a brokering service? If they are acting as middle men between you and your creditors and charging you a fee to negotiate lower, monthly repayments you can actually do this yourself. It may initially appear to be daunting but approach your creditors and ask them to freeze or lower your interest re-payments. You could also ask them for a final re-settlement figure as they may be willing to close the debt for a one off lump sum. This affects your credit rating but does mean that you paid off some money that you owe. To consolidate or not to consolidate, then? Thoroughly check your finances and options first to explore which route may be best for you.