We’ve all been there when a debit order is mysteriously delayed, only to come through as soon as you are short of funds. And while it’s fairly easy to fix a missed debit order, this leaves a mark on your credit record that you don’t really want.

You want to keep your credit record free of marks like these, because that makes it easier and cheaper to borrow money. Your credit score is 1 of the factors that lenders look at when deciding what level of risk you pose.

If you have a low credit score, you may be refused credit, or you’ll pay a higher interest rate because you’re considered a higher risk. An effective way to stay on top of what you owe is to simplify your debts.

Getting your house in order

You could, for example, combine all of your personal loans into 1 loan. This process is called debt consolidation or loan consolidation, and is commonly used to ease your monthly debt repayments. This is definitely worth considering if you want to simplify your finances.

To see the effect of combining multiple loans into 1, use this loan consolidation calculator. This is a great way to see how the repayment amount differs depending on the duration of the loan.

Take these 2 scenarios in which the lower interest rate on your consolidated loan means your monthly payment is lower than when paying the different loans.

In the first scenario, if you choose to continue paying the same amount as before, you could end up settling this debt over a shorter period. You would therefore pay less interest in total.

In the second scenario, if you pay the lower monthly amount of the consolidated loan, settling your debt would take longer. The monthly saving, and 1 monthly service fee, will provide you with some steady cash flow, but you will pay more interest in the long run.

More upside than not

As you can see, you’ll be doing more than simplifying your finances when you consolidate your loans. Simplicity comes from having only 1 loan repayment every month. But the financial advantages of managing your debts are equally worthwhile.

Firstly, the interest rate of your consolidated loan should be lower than what you were paying previously. So, you should end up paying back less in total for your loan compared to your multiple loans.

You also have built-in discipline with a personal loan. Unlike revolving credit like a store card or credit card, you’re unable to add more debt to the loan once you’ve received it (although you can take out additional cash over and above your debts when you apply for a consolidation loan).

And this discipline, at the end of the day, will be reflected in your credit score when it’s clear that you pay your debts on time and that you haven’t taken on too much debt. Managing your money doesn’t have to be a chore. The more you learn about how you can make your money work for you, the better off you’ll be.

Always consider your options, and don’t be scared to ask. Whether asking a family friend, a close acquaintance or a professional financial advisor, your questions show that you want to learn more and get to grips with your finances.

Loan consolidation is but 1 of many tools you can use to get your monthly budget under control.

At the end of the day, your single biggest power will be your self-discipline and commitment to sticking to your plan. Slowly, but surely, you’ll see your debt levels dropping while your confidence keeps rising.