Although debt consolidation can be a useful tool to help consumers manage debts, around a third of people from the UK don’t understand what it is, according to new research from Tesco Bank.
While 33 per cent of Brits don’t understand debt consolidation, and others don’t know that it exists as an option, Tesco Bank says it uncovered an appetite from some to find out more about it. In fact, 10 per cent of respondents said they only have some understanding of debt consolidation but would like to learn more.
Debt consolidation can be an option for those who have several outstanding debts to roll them into a single monthly payment, making it a helpful way for some to manage and reduce debt over time.
While a considerable number of people have little understanding of debt consolidation, 17 per cent of consumers have utilised debt consolidation in the past. Only one in 20 (six per cent) plan to make use of debt consolidation this year to help manage their finances.
However, the research also highlighted what people think are the barriers when it comes to accessing debt consolidation. A fifth (21 per cent) cited high interest rates as the main issue, whereas 13 per cent said a lack of understanding or awareness of debt consolidation prevents people from accessing it.
A further 13 per cent said it’s down to feeling embarrassed or stressed when it comes to debt, while 12 per cent believe the biggest barrier is because people are unable to afford new monthly repayments on a debt consolidation loan. Meanwhile, 10 per cent think people needing to prioritise other money commitments over their debts is a barrier to debt consolidation, and six per cent think the high volume of debts they may already have stops them from accessing it.
Streamlining debts to make them easier to manage
“While the thought of taking out another loan may feel daunting, consolidation loans offer a really simple way for some to help manage their money better,” explained Mamta Shanbhag, ‘Help me Borrow’ director at Tesco Bank. “By streamlining any debts into one place with a single repayment plan it can become easier to know how much you need to pay back each month and how long it will take to clear your debt.”
1. Keep an eye on debt levels
If you have multiple loans, try and keep all the paperwork together in one place – perhaps in an app, on your computer or in a physical folder – that you can refer to regularly and keep on top of how much you need to pay back and by when. That way you can see clearly which debts need to be paid first and if there are any fees attached.
2. Do your research
Assess what the right borrowing option and product is for you. A credit card may be more suitable to help spread the cost of a big purchase or to cover an unexpected expense, whereas a loan may help for larger purchases such as a new family car or home improvements. Always check the small print so that you’re clear on how much interest you’ll pay. Before taking out a loan, make sure to note down the total amount you’ll repay as well as the Annual Percentage Rate (APR), and whether it’s a secured or unsecured loan. As with all financial products, it’s important to seek financial advice if you’re unsure whether a product is right for you.
3. Set up a budgeting app
Planning your budget can help you track where your money is going. Using a budgeting app can help give you a full picture of your weekly or monthly spending and can help identify areas where you might be able to make changes. You can use virtual tools such as spreadsheets or online budgeting planners to support you too.
4. Speak to someone
For many, talking about money is a taboo subject and can be difficult to bring up in conversation. However, not communicating about it could also lead to struggles in some shape or form later down the line. Whether it’s talking about financial goals with a partner, or money mistakes and difficulties with loved ones, being honest and open about your financial situation could take some weight off your shoulders and allow you to feel more in control. Preparing in advance what you want to say and structuring your thoughts can be an effective way to ease into conversation.
5. Speak to experts
Citizen’s Advice or Step Change both offer free, impartial help on debt and other financial advice. Do some research, seek some support, and find the solution that suits your personal circumstances the best.
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