The amount of outstanding debt you have may not affect your credit score, but your ability to pay it off does. Unfortunately, the pandemic affected many households’ ability to pay off their debts, especially those with children.
CompareTheMarket conducted research that revealed a third of families are still struggling to pay off outstanding debt incurred since the lockdowns began. Many UK households have also reported outstanding debt of between £9,500 and £12,000, without mortgage repayments.
What can you do to pay off your debt on time? Here’s how consolidating your debts could help.
What is debt consolidation?
Debt consolidation means taking out one new loan at a lower interest rate to pay off the combined amount owed on various smaller loans. It’s not always as straightforward as it sounds. You may need to speak to a debt specialist for personalised assistance to find out whether your unique situation qualifies for debt consolidation and to avoid mistakes.
Should I consolidate my debts?
If you’re eligible, it could be a good option. It’s important to first check whether you have a bad credit score because you may not qualify for debt consolidation if you do.
Additionally, the options available when you have a bad credit score may not be that attractive. You may not be eligible for low interest rates and might be required to take out a secured loan against your home as collateral.
It’s also important to check what fees might apply to consolidate your debts. Sometimes the cost of consolidating might not be worth it. That’s why consulting a financial adviser is a good idea if you’re not sure where to start.
However, if you have a good credit score and are eligible, consolidating your debt can offer significant benefits. You can simplify your finances since you no longer have to worry about multiple due dates. You can also enjoy a lower interest rate, making it comfortable for you to make monthly repayments. All you need to do is make a budget to avoid falling behind with your consolidation loan.
What if consolidating your debts isn’t right for you?
There are two other things you can do if consolidating your debt doesn’t seem to be the right solution for your circumstances.
1. Seek financial support
CompareTheMarket’s research revealed that 60% of those struggling to pay off outstanding debt are struggling in silence.
The study showed that many people stacked up debts during the lockdowns. As a result, 27% of UK households sold unused and unwanted items to help pay off some debt, 26% put off large purchases and 24% had to pay off debts with savings.
If you’re struggling, check whether you’re eligible for financial support. An excellent place to start is contacting debt charities, Citizens Advice, and looking into the government’s new Household Support Fund. You can also find out about your eligibility for Universal Credit and other benefits.
2. Switch utility providers
Have you considered comparing household service providers for better deals? It’s worth finding out whether you can cut down your monthly outgoings by switching utility providers to find a cheaper tarriff. This can help free up funds for you to pay off your debt. It might look like a small step in the short term, but you’ll definitely save a lot in the long run.
The post Just 8% of Brits have been consolidating their debts. Here’s why more should consider it! appeared first on The Motley Fool UK.
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