What is Debt Consolidation?
05 Jan 2022
As we ease into the new year, many of us will take time to reflect on our financial situation. With the excesses which Christmas time can bring (which impact both our waistlines and particularly our finances), the early weeks of the year can be a challenging and stressful time.
If you have built up a number of loans or debts from a variety of different providers, you may begin to feel like your finances are getting out of control and starting to cause you stress. Trying to manage and keep track of multiple debts from a variety of lenders can be a burden. In addition, many of the debts may be at different rates of interest leaving you with the challenging task of balancing your money to meet your repayment obligations, whilst also trying your best to pay down the debt with the highest interest rate first.
Stress about your money might manifest itself in a number of different ways
- It may cause you sleepless nights as you worry about the financial impacts on you and your family
- It may be on your mind during the day as you try to go about your usual activities.
- You may be worried about answering the phone to numbers that you don’t recognise or you may experience anxiety as the post is delivered
What is a Debt Consolidation Loan?
For some, a debt consolidation loan may offer some respite. A debt consolidation loan, or a loan to clear other loans, is a new, single loan that essentially combines more than one outstanding debt. This could, for example, combine your credit card debt, personal loan repayments, moneylender loan, outstanding car finance or an overdraft into one single weekly or monthly payment.
Ideally, the debt will be refinanced at a lower interest rate, which as well as giving the comfort of just one weekly or monthly repayment, should also see less interest being paid over the duration of the loan, thus saving you money.
Debt consolidation loans are used by many people, in particular, to clear high-cost credit card debt. While a credit card might seem like a flexible option when you are making a payment, if you do not clear the balance in full by the end of the period, you could end up paying interest of up to a whopping 26% APR. If you are only making the minimum monthly repayment on your credit card, it may seem like you’ll be paying off the debt forever. You can find our more about how a credit card works by reading ‘Do you really understand how your credit card works?’.
Debt consolidation isn’t a silver bullet for all debt problems and it is not the solution if you’re overwhelmed by debt and have no realistic hope of clearing the amounts owed off even with reduced payments. There may be underlying issues such as excessive spending habits which create unmanageable debt in the first place. It’s important that these issues are tackled to avoid a recurring cycle of over indebtedness. Organisations such as the Money Advice and Budgeting Service offer impartial advice and play an important role in helping people to deal with problem debt.
Credit Union Debt Consolidation Loan
Many credit unions offer low-cost debt consolidation loans in order to support their members.
Some examples of some of the best debt consolidation loan rates available from credit unions include:
Letterkenny Credit Union offer a debt consolidation loan at 7.95% (8.2% APR).
TUI Credit Union offer a debt consolidation loan at 8.53% (8.59% APR)
Altura Credit Union offer a debt consolidation loan at 9.25% (9.65%).
With a credit union loan, there are no hidden fees or charges and loan repayments can be tailored to suit individual circumstances.
If you apply for a debt consolidation loan from a credit union, you will be asked to provide details of your income and your outgoings and also details on the amount, duration and repayment history of your outstanding debts.
The credit union will assess the documentation which you have provided and check that you can comfortably afford the repayments on the new loan. If the loan is granted, the payments may be made directly to the financial institutions in question to clear the outstanding debt, leaving you with a single loan repayment.
If you feel overwhelmed by debt as the year ahead faces you, get in touch with your local, friendly credit union about a debt consolidation loan.
You can find contact details for your local credit union here.
Money on your Mind is a new series which aims to help you build your financial confidence. You’ll find insights, tips and suggestion to help you feel more knowledgeable about managing your money, as well as jargon free answers to some basic financial questions. The content within this series is aimed to provide general guidance and information only. It does not represent financial advice.
Loans are subject to approval. Terms and conditions apply.
WARNING: If you do not meet the repayments on your loan, your account will go into arrears. This may affect your credit rating, which may limit your ability to access credit in the future.
WARNING: This new loan may take longer to pay off than your previous loan. This means you may pay more than if you paid over a shorter term.
Credit unions in the Republic of Ireland are regulated by the Central Bank of Ireland.
A one year €8,000 variable rate debt consolidation loan with an interest rate of 7.95% (8.2% APR) will have 12 monthly repayments of €696.65 and the total amount payable will be €8359.77.
A two year €10,000 variable rate debt consolidation loan with an interest rate of 8.53% (8.59%) will have monthly 24 monthly repayments of €453.51 and the total amount payable will be €10,882.
A one year €5,000 variable rate debt consolidation loan with an interest rate of 9.25% (9.65% APR) will have 12 monthly payments of €438 and the total amount payable will be €5,253.