Debt consolidation has helped hundreds of individuals regain control of their finances, manage their repayments and effectively become debt-free.
But like all debt solutions, debt consolidation is not a standard plan for all debt problems; it only works for borrowers with specific needs and financial circumstances.
Debt consolidation plans can be an expensive option for some borrowers in the long run. That is why it is really important to weigh out all your options with a professional debt advisor.
If you are planning on taking out a debt consolidation loan in the UK, we recommend you schedule a free consultation with an impartial debt expert. Not only can a debt specialist help you pick the right debt plan, but they can also provide resourceful advise and put you on the path to financial recovery.
It is also equally important to educate yourself about debt consolidation, how it works and how you can go about the process of consolidating your debt. So, if you are considering taking out a debt consolidation loan in the UK, here’s all you need to know:
What is Debt Consolidation?
Debt Consolidation is a form of debt refinancing suitable for borrowers struggling to repay multiple debts. It is the process through which UK-based borrowers can combine many small debts from different creditors into a single monthly payment to a single lender.
Debt consolidation makes it very easy for some borrowers to keep track of their outstanding debt, manage their expenses, cut down on spending and retain control over their cashflows. Having a single payment schedule simplifies the debt repayment process and makes it hassle-free.
How Does Debt Consolidation Work?
In debt consolidation, borrowers take out a single huge loan called a “debt consolidation loan”, to pay off their existing debts like loans, overdrafts and credit card borrowing.
Once this lump sum clears all their small debts, borrowers only have to make a single monthly payment to their new lender for a fixed period of time. This way, they don’t have to go through the bother of repaying several creditors on multiple dates throughout the month.
The most common debt consolidation methods include:
- Zero or Low-Interest Balance Transfer Card: Borrowers transfer all their debt to this card (nominal transfer charges may be up to 4%) and then repay their balance during the promotional period
- Fixed-Rate Debt Consolidation Loan: Individuals can apply for a debt consolidation loan to clear off their existing debts and then repay their new debt in the form of monthly installments.
Is Debt Consolidation a Good Idea?
The answer to this depends on your financial circumstances. Do you have a regular and stable source of income? Can you afford to make regular monthly payments to your creditors? Have you exhausted all other alternatives like peer to peer lending? These are some of the pertinent questions you should ask yourself before consolidating debt.
Debt consolidation may work out for you if:
- Your savings are not consumed by fees and extra charges
- You can afford to make monthly payments
- You plan on reducing your spending
- The total amount you repay under debt consolidation is less than what you’re paying already
Debt consolidation may not work out so well if:
- You cannot afford to make monthly payments
- You have a poor credit score
- Your debt consolidation loan does not clear your existing debts
- You’re paying more than before because of high-interest rates or longer duration
- You have serious debt issues and you need a proper debt management strategy instead of another loan.
If you’re wondering whether debt consolidation can help you pay off your debts or not, schedule a free consultation session with an experienced debt advisor here.
So, How Can I Consolidate My Debt?
If you have thought your financial strategy through and are planning to consolidate your debts in the UK, follow these steps:
Step 1: Work Our Your Outstanding Debt
Begin by gathering all the information you require to work out how much you owe to your creditors. You may need to review your receipts, invoices, any proof of payment and other financial records before calculating your outstanding debt.
Check your balance and sum up all your debt. Then add any extra charges, fees, and penalties to the total to calculate your outstanding debt.
Step 2: Talk to a Debt Advisor
Calculated your outstanding debt already? The next step is to seek the assistance of a professional debt advisor. They can give you free advise and help you select the perfect debt solution for you.
Step 3: Secured vs Unsecured Loan
Go for an unsecured loan if you are borrowing less than £25,000. If your debt consolidation loan exceeds this amount, you may have to go for a secured loan instead.
Step 4: Payment Term
You want to ensure that you’re repaying your debt reconsolidation loan as soon as possible, mainly because longer plans tend to cost more.
Step 5: Compare Interest Rates
Interest rates depend on various factors including the level of your debt, your credit ratings, and overall payment duration. That’s why you should shop around and compare interest rates before settling for a provider.
*If you’re struggling with debt issues, it is better to be proactive and take charge of the situation before it spirals out of control. Money Advisor provides free resources and advise to individuals struggling with debt repayment in the UK. Get free debt advise!