Having just one creditor to think about rather than multiple ones can make dealing with your finances much simpler. For those worried about their money and how to eventually become debt-free, options to consolidate your debts can provide light at the end of the tunnel. This in turn will help you to gradually reduce, rather than add to, your outstanding debt. If this sounds familiar and you are not sure where to start, here’s our quick step-by-step guide.
Find Trusted Lenders
There are many lenders who can provide a debt consolidation loan, so finding trusted ones is important. You’ll want to find Financial Conduct Authority (FCA) approved lenders, as you will then know they work to responsible lending guidelines and will treat you fairly as a customer. If you are unsure, then check the FCA register before applying. As someone who is already in financial difficulties, you’ll want to ensure the lender you choose is legitimate and that all terms are transparent and easy to understand. Some lenders will also set eligibility requirements, so ensure the loan you apply for is suitable for you and your circumstances first.
Check You Can Afford Repayments
Before applying for any form of borrowing, knowing you can afford it is crucial, otherwise you can fall further into difficulties. Many lenders will assess your finances as part of the lending approval process, so having prior knowledge of your affordability will ensure you can apply in confidence. Compare your income and expenditure and work out which are essential outgoings that you need to maintain. This should leave you with a disposable income that your non-essential spend will use, and this is where it is a good idea to review any regular outgoings you can reduce. If you find that your regular monthly spend on non-essential expenses is high, this will leave you with little affordability, so cutting down is best where possible. You’ll need to prove to the lender you can afford the loan, so taking the time to review will help.
Ensure Your Debts Can Be Settled Early
An important step is to check that your current creditors will allow early repayment of the loan or balance. Some lenders may charge an early settlement fee to do so, and this will need to be considered as part of the total debt consolidation loan you want. Many lenders of debt consolidation loans will not contact your creditors for you, so it is your responsibility to ensure they can be paid off in full using the loan. It is best to contact your lenders or check your credit agreements for details of early settlement and be aware of any applicable fees to do so. Otherwise, the loan you apply for may not cover the total amount you need.
Once you’ve found a trusted lender, reviewed your finances and eligibility, and checked for any early settlement fees required, you can apply with confidence. A debt consolidation loan when used correctly can make paying off your debt less stressful and keep you on track to debt freedom.
