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My name is Kim and I have debt. Since the age of about 19 when I received my first credit card I have been in some way shape or form in debt. Recently, almost 20 years later, I have chosen to take out a debt consolidation loan.
Debt is an incredibly taboo subject and something we can be embarrassed to talk about. I know I have been. For several years I felt ashamed about the amount of debt I had accumulated and for a long time I’ve been living paycheck to paycheck paying off minimum payments in an effort to get by.
My reasons for choosing a debt consolidation loan are something that suited me at the time. What you shouldn’t do though, is put your head in the sand in the hope it will go away. There are several places where you can seek help. Whether it is speaking to a loved one, a friend or seeking professional help.
Whatever you do, don’t be ashamed to talk to someone, avoiding it can only generate further problems and whilst it may not be an easy conversation, it will help you in the long run. Finances can be a very contentious subject and the source of many arguments between spouses – but you must face your debt to be able to tackle it.
What is debt consolidation?
Consolidating debt usually means taking out another form of credit (perhaps a loan) to pay off an existing debt or debts. Debtconsolidation.com*, whilst an American site, offers resources, tools, and programs to help you manage your debt.
Consolidating debt may combine several different debts into one payment. Debt consolidation should only really be considered when it actually saves you money.
This is why I chose to consolidate my debts. I turned what was £16k of debt across five different store and credit cards, into one single payment which overall saved me £160 a month. Over £600 a month was dedicated to paying off debt. That is a huge chunk of my salary each month.
Facing up to debt
As mentioned above, the first thing you can do is face up to your debts. I found writing down the following into an excel spreadsheet really helped me:
- Outstanding balance
- Monthly repayment amount
- APR
- Approximate date to clear that debt
Once I had this all down on a spreadsheet, I was able to really figure out and get my teeth into how I would pay off my debts.
Usually, you’d target the debt with the highest interest rate in order to avoid paying back more, then work back from there. In my case, I was paying the minimum I could afford on each debt I had, and had absolutely no wiggle room at all.
I was also in a position of an arranged repayment scheme with one of the store cards. This was because the minimum payment owed was far more than I could afford and I ended up in arrears. This is where not being ashamed of your situation comes in, I called the company and they worked out a debt management plan that would work for me and what I could afford. Interest rates were frozen and the account was paused so I was unable to make any other purchases on it. This is known as a debt management plan and companies will willingly talk through with you your options if you’re struggling.
By doing this process, you’ll know exactly what method will work for you.
Why does debt consolidation work for me?
Debt consolidation was the best option for me because I found I was only able to afford to pay off the minimum amount for each credit or store card I had. This meant that I was only paying off a small proportion of the debt each month, and mostly covering the interest.
It allowed me to take advantage of a much lower interest rate. One store card for example was at 49.9% APR and based on the monthly minimum repayments and the balance owed, I would be paying off that one debt for almost 7 years. The debt consolidation loan is for 5 years, with the option of being able to pay off additional amounts as and when needed.
This meant I would be paying off less interest and over a shorter period of time, whilst also saving myself a considerable amount of money per month.
My loan was an unsecured debt consolidation loan.
Managing future credit
An issue I’ve found myself in, time and time again, is building back up a ridiculous amount of debt because I have never cancelled store or credit cards. Saying to myself “oh, I’ll keep that credit card for emergencies” or “I might want to use my next store card to buy myself a jumper”.
What has changed for me now? Well, I’ve been incredibly strict and I have cancelled all those store and credit cards immediately upon paying them off with the loan. This means there is no temptation to use them down the line.
I’ve upped the amount of money I’m putting into savings, allowing me to treat myself or build up an emergency fund. I’m also being strict on myself by not allowing myself to overspend what I don’t have – a problem I’ve always had! There is no doubt a better way for me to manage this so I will be exploring how I can build up decent savings.
Can it impact my credit score?
Of course, any type of credit can have a negative impact on your credit score. As with any means of credit – you must keep up with your repayments. Missing repayments will result in a negative impact on your credit.
Of course, your eligibility for a debt consolidation loan may well impact on your ability to get one, or the interest rate. You absolutely do not want to be taking out a loan that has a higher interest rate than your other debts.
Whilst the interest rate on my consolidation loan was not brilliant, it is considerably lower %APR than my lowest % credit card.
What does this mean for me and my financial future?
Well – I’m hoping that 5 years from now, if not before, I’ll be debt-free! I don’t ever want to be in this position again and finally, after almost 20 years of managing debt I can see light at the end of the tunnel.
I feel much more relaxed about the cost of living going up, two months ago I was worried I would not be able to afford to pay for electricity but now, knowing I have that little bit more disposable income at the end of each month, I can breathe a little easier. Of course, there will be a number of money-saving strategies I’ll be applying to help keep costs to a minimum.
I’m by no way out of the woods yet, but, the undergrowth is certainly thinning.
Peace out!
Jangles x
*This article contains sponsored links. Content and thoughts are based on my own experiences.
Please note I am not a financial adviser and chose a method of debt management that suited my situation. Always talk through your options or seek the advice of a professional.
