Easy Credit Repair Guide

If you’re the kind of person that more credit or store cards than you can think of and is also busy paying off loans with high interest rates, then you really should consider the option of debt consolidation. Note that we said consolidation, NOT management – debt management is a different way of reducing your monthly outgoings and requires the involvement of a specialist firm to take control of your creditors’ demands for money. Debt consolidation, on the other hand, leaves the responsibility in your hands but can also give you enough money to pay off all your debts in one go and have just one line of credit that’s infinitely more affordable.

Depending on the amount of debt you’ve got, there are two consolidation options open to you: a credit card balance transfer or a proper loan. Since many credit card providers have cards with 0% interest rate offers on balance transfers, it’s a good idea to consider applying for one if you only have a small level of debt (say, less than £5,000) since you can then transfer most, if not all, of the debt onto a single card. With no interest added for a set period, this allows you to focus on solely paying off the balance and really make a dent in the amount you owe. Just remember that balance transfer cards are best locked away once you’ve made the switch – if you spend on it, you’ll only be adding more debt and incurring interest while you whittle away at your interest-free balance.

If you’re extra clever, you can then keep this 0% rate going by switching cards again just a month before the rate expires – however, that requires careful planning and good timing, so you’ll need to prep ahead of time to make sure you can manage it.

If, however, you’ve got too much debt to transfer onto a single credit card, you can either follow the card route and only move some of your debt into a 0% interest location or, perhaps more sensibly, consider applying for an unsecured consolidation loan instead (which may be the only option if you have bad credit, since it’s unlikely you’d get approved for a low-rate credit card). Consolidation loans need to be taken out for the total amount you owe – not more, so don’t be convinced by a lender to take out a bit more to ‘treat yourself’! – and then used to pay off all your debts at once; that done, you’ll be left with just one loan to pay at an interest rate that’ll be undoubtedly better than the multiple ones you were paying previously.

Of course, the catch with an unsecured debt consolidation loan is that you need to find not only a lender that’s willing to provide enough money to cover all your debts, but do so in an unsecured way with a low interest rate that you can afford. Since unsecured loans place all the risk at the loan provider’s door, they’re harder to be approved for than secured ones that you take out against your assets (such as your home), especially if you’ve got bad credit on your credit record. In this case though, it’s wise to approach a reputable loan broker – one that doesn’t charge up-front fees and has a wide range of lenders on its books – to help find your loan, since they’ll be able to source a large number of options and interest rates applicable to your needs.

In Summary

Unsecured debt consolidation…

Is worth considering if you’re drowning in large amounts of unsecured debt Can combine all your current debt into one reduced monthly outgoing May have a higher interest rate and be harder to get than secured consolidation Could be achievable through either a 0% credit card or a fixed repayment loan Needs to be managed to ensure you don’t slip into more debt along the way

Copyright: Individual Finance, 2010

By: Martin Mathers

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