Debt Consolidation

Debt Consolidation generally means clearing your unsecured debts using funds raised by secured or unsecured loans, remortgaging your property or perhaps using equity release. The debts could include credit cards, loans, Council Tax or utility arrears or debts due to HMRC. Debt Consolidation is only recommended if the monies raised will clear your debts, the repayments are affordable and will leave you in a better position financially.

Advantages

  • You can seriously reduce your outgoings by consolidating your debt and having just one affordable monthly payment
  • Debt Consolidation can also be used to offer discounted settlements to your creditors. Check out our case studies for examples
  • Debt Consolidation can help to preserve your credit rating. Debt solutions such as debt management or IVAs will have an adverse impact on your credit rating.

Disadvantages

  • Consolidating your debt with a secured loan or by way of a remortgage will convert your debt from unsecured to secured
  • The loan plus the interest may mean you are repaying your debt over a longer period of time. It is always recommended before you take out new finance to clear debt, you compare how much you will repay to your creditors over the period of the loan with the amount you would repay instead by getting charges frozen and aiming to clear your debt using debt management or a formal solution such as an IVA.
  • You may not be eligible to get consolidation loan

What is a secured debt loan?

  • A secured loan is when debt is secured against a property. This can be compared to taking out another mortgage. If the loan cannot be paid back, the loan company may sell the property. Due to this factor it is advised approaching a secured debt loan with caution. 
  • A secured loan is usually cheaper than an unsecured loan due to the lenders ability to sell your assets where repayments are not made. This means less risk for the lender with lower interest rates. Any change to your circumstances with regards to maintaining repayments may place you in a worse position.

What is an unsecured debt loan?
Otherwise known as a personal loan. Difficulty maintaining repayments will affect your credit rating, but the loan company cannot repossess your home. 

How many I obtain a Debt Consolidation Loan?
If you choose a debt consolidation loan, it is highly advised that you ‘shop around’ using comparison websites to find the best deal. It is also advised seeking additional advice before making a final decision as other solutions may be much more suitable. Ensure you compare the APR (Annual Percentage Rate) or the APRC for secured loans as this will include additional costs such as an arrangement fee. 

Considerations

  • Beware of any associated fees that may be incurred for arranging the loan
  • Always read the small print carefully for any extra fees or changes before you sign anything 
  • Check whether there are any fees for paying off existing loans early as this could impact any potential savings you wish to make 
  • Avoid paying a fee for a company to arrange the loan on your behalf, unless you are getting advice and you are sure it is worth the cost
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