Principles to consolidating debt
When consolidating debt, be it credit card debt or loans, having a strategy is the best way to start. The following principles show how you can device your own strategy for consolidating your debt.Getting organised:
Make an account of all the debt you owe. If necessary, create a list of all your creditors, includes the amounts, interest rates and any projected changes (e.g. an increase in the interest rate).
Sort the list by level of risk, i.e. deadline, debts with the highest interest rate or likeliness of an interest rate increase.
If you have any credit cards to which you don't owe any debt, be sure to cancel them. The number of credit card accounts you have affects your credit score, even if you might not have any balance on some of them.
Making a budget:
Its easy to dismiss a budget as an unnecessary entity, however, consolidating debt requires good organisation and making budget is part of being organised;
Assess your total monthly earnings and expenditure; try to find areas where you can cut back (any unnecessary expenses). If you're unsure of your expenditures, keep a daily log of your spending for a week, at the end of the week work out what you could have done without. Be sure not to overlook anything (when consolidating debt even £1 makes a difference).
Prioritising debts:
With the budget in place, you might be able to free up extra funds. If this is the case, you should increase the monthly repayments on the debts with the highest risk according to your list; this would enable you to consolidate the debt in a shorter time.
Seeking outside help:
If your budget shows that your outgoings are more than your income, then you may need help to consolidate your debts;
Try speaking to your creditors and explain that you are struggling to keep up the payments on the debt. Some creditors are willing to work out a solution to help you, whether it's extending deadlines or lowering the interest rate.
If unable to workout a solution with the creditors, you should consider debt counselling. You can get free debt consolidation advice from your local Citizens Advice Bureau. To find your local CAB office go to: Citizensadvice.org.uk
Finally, if you think you may be in danger of bankruptcy or are facing creditor hassle, an IVA might be the solution for you. To find out how an IVA can help you consolidate your debt, see: IVA.
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