Having inefficient debt is a huge obstacle that most people face when they are trying to improve their financial position, so it should be eliminated as quickly as possible. One of the best ways to do this is to minimise the amount of interest you have to pay by consolidating your loans.
Generally, people prefer to consolidate their debt into their home loan because it offers the cheapest rates, rather than personal loans and credit card debt that tend to have higher interest rates. If you think this strategy is right for you, the following steps will help you pay off your debts faster through consolidation.
Step 1: Get your debts in order
Go through all your statements and find out how much you owe and to whom. You may have debts such as a mortgage, debt to family members, cash loans, credit cards and so forth. Make sure you have a good understanding of the interest rates of each loan type, and tally the final amount.
Step 2: Determine your budget
Once your loans are consolidated you will still need to have a plan to pay them back on time, otherwise you’ll end up in the same position you were in before. Determine the assets you have, and then figure out how much you spend on utilities, food, insurance and so on. Once you have a solid understanding of your income and expenditure, the remainder is the margin you have to start paying back.
Step 3: Talk to your financial advisor
Chances are good you will end up using your home loan to accommodate your debts. Of course, if you don’t have a mortgage, you can take out a personal short-term loan at a lower rate of interest than your previous ones instead. A financial advisor can help you decide what form of debt consolidation is going to be right for your situation, and then they can help you make it happen.
Step 4: Pay off the new loan
Now that you have consolidated your debts, you have to make the repayments your top priority. If you don’t, it will take you longer to pay off the new, larger loan, which will end up costing you more on interest in the long run anyway. Before anything else, paying off your debt quickly is crucial, even if you have to reconfigure your budget in order to maintain the payments.
Step 5: Change your ways
There aren’t many other options between debt consolidation and bankruptcy, so it’s important you make this strategy work. The only way debt consolidation can continue to benefit you is if you don’t add any extra debt on top of your current balance, so you have to drastically change the relationship you have with credit. Just do whatever is going to work for you, and remember that debt consolidation can be the means of clearing yourself permanently of bad debt — as long as you take it seriously.
Debt consolidation can help you reduce your monthly finance repayments, save you money on fees and interest, and help you take control of your debt. Talk to your financial advisor or bank today to find out how you can take all of your bad debt and turn it into a form that is more manageable.