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Debt Consolidation

What is Debt Consolidation?

With Debt consolidation all your debts such as loans, credit cards and store cards are combined into one new loan, paying off multiple creditors. The loan can be either secured on your house or unsecured, in the form of a personal loan or credit card.


Is Debt Consolidation right for me?

This is dependent on your circumstances. You should consider debt consolidation if:

  • You are finding it difficult to keep up to date with existing debt repayments.
  • You are experiencing problems meeting your day-to-day expenses.
  • Your existing debts have high interest rates and you would like to lock your debts into one, lower rate.
  • You want to reduce your regular payments to a new lower amount.

We all know that debt consolidation can be a risky strategy to clear your debt. Avoid the risk by ensuring that you have control of your spending to before you take out a debt consolidation loan. Use our free our SOA as a guide to gain control over your spending.


Debt Consolidation - Pros v Cons

    Pros
  • Debt consolidation can reduce your monthly rates to a new lower amount.
  • High interest rates are replaced with a lower rate.
  • Debt consolidation is useful for combining multiple debts into one.
  • It stops your creditors pestering you because you have paid them off.
    Cons
  • Debt consolidation in the form of secured loans can last over 20 years and although the monthly repayments may be attractive, check out the total amount repayable!
  • If you are considering a secured loan as an option to pay off your debts, you should bear in mind that if you are unable to meet your financial obligations then you may be forced into selling your house (repossession).
  • Normally, you will be extending the length of time you will be in debt. Therefore, you should have a Debt Management Strategy to avoid increasing your debt further.
  • Once you sign up to a secured loan, the length of the agreement cannot be altered without financial penalty.
  • Secured loan rates will normally vary relative to the Bank of England base rate. So the low rate you were offered initially may increase next month or next year.


Who regulates Debt Consolidation?

Secured Loans
If you are considering re-mortgaging to release equity in your house then the company must be registered with the FSA. This requires them to provide you with certain information before you sign a contract.

If your secured loan is a second charge then currently the FSA does not regulate this in the same way as it does mortgages. The secured loan company must have a Consumer Credit Licence issued by the OFT. This imposes certain conditions on them which require them not to mislead you.

Unsecured Loans
Normally you will not be able to get an unsecured loan above 25,000. The OFT regulates all companies which provide unsecured loans.


Alternatives to Debt Consolidation

Debt Management


How to apply for Debt Consolidation?

To get the best debt consolidation loan the best thing to do is to shop around. Use brokers who have access to the whole market. Do your own calculations, i.e. how much can you afford per month, before you approach a broker.


How long does it take to set up Debt Consolidation?

Secured Loans
This depends on which provider you use. Some can do it relatively quickly, i.e. within 2 weeks. Some may take longer, verifying the valuation of house and income etc. may add a couple of weeks.

Unsecured loans
If you have a good credit score then getting debt consolidation using an unsecured loan may be a good option. You can get loan approvals over the phone and have the money in your account within days.


What happens to my credit rating?

Using debt consolidation to pay off all your debts will have no negative impact on your credit rating. However, your credit rating may be impacted if you have missed payments or have any CCJs or decrees against you.


Fees - Who and how much?

Who?
It's worth shopping about for any kind of debt consolidation loan. With secured loans, the interest rates can vary widely so do your research before you commit to a loan.

How much?
The costs, how much you can borrow, over what length of time and the Annual Percentage Rate (APR) will depend on:

  • the value of your property
  • your ability to repay the loan
  • your personal circumstances

Note:
You will also need to be careful about whether you can meet the repayments on your secured loan. If you default, you may lose your home.


Take control of your debt

The key to effective debt consolidation is have control over your finances. To help achieve control we recommended you complete our SOA and get your finances back on track. Once you complete your SOA you'll find that you understand where the solution lies to your financial problems.

And remember - our debt forum is here to offer you help and advice whenever you need it.

Don't let your debts drive you down the highway of despair - take back the controls and get on the road to financial happiness.


External Links

OFT - Debt Consolidation

Consumer Direct


Debt consolidation articles

Debt consolidation can be an effective way to address your debt problems. Combining all your debts into one new loan can be an effective way of managing multiple debt problems. There are various ways in which your debt can be consolidated; through a re-mortgage, an unsecured loan or a secured loan. However, the pros and cons of each option should be carefully considered. Click here to read more about debt consolidation.


Debt Consolidation Related

Debt Consolidation Websites

Debt Consolidation Program Websites

Mortgage Debt Websites

 



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