What is Debt Consolidation?
Debt consolidation is a way to consolidate all your debts into one, so you are only paying one payment and one interest rate. There are a variety of different loans that do this.
Consolidation loans may not resolve your debt problem so, before deciding to apply for a loan to consolidate your debt, try looking at your spending habits first to see if anything can be done to reduce your outgoings.
Even if you have reduced your spending, you may not quite find the right loan for you in terms of affordability and manageable interest and you should seek help and advice on how to reduce your debt.
Download our budget planner
A consolidation loan can sometimes be followed by continued increases in credit card debt, etc, when people do not focus on reducing spending or paying back debt. Unexpected events alone can increase your debt levels. Make use of our free budget planner to manage your spending.
Downloadable budget planner
Peace of mind from consolidation
For peace of mind you should look for an affordable way to actually pay back debt. Speak to one of our advisors to see if you can get help in reducing rising debt.
- Debt Advisory Line has experienced advisors to help you work things out. There are several debt plans, which effectively consolidate your repayments.
- Pay back debt and reduce bills to a single manageable repayment.
- Start a repayment plan to access our creditor liaison team who will to try and freeze interest and charges on your behalf.
- Have enough money left to get on with your life.
If you are turned down for consolidation loan
Call us if you have been turned down for a debt consolidation loan and are looking for advice straight away
0800 157 7254 †
From a mobile it may be cheaper to call:
0161 429 3823 †
How debt consolidation works?
Unsecured Loan Process
To get an unsecured loan is fairly straight forward. You need to find a loan that is large enough to consolidate all your debts into one, so that you can then make one simple monthly payment. You may be able to find a loan that offers lower interest than you are currently paying.
Please remember that trying to repay your debt by borrowing more money will not mean you are out of debt, you are just moving the debt around from one lender to another. It may also mean that you are paying the debt back for longer which may result in you paying more.
You may be better suited to other debt help such as a Debt Management Plan, where your lenders may agree to freeze all interest and charges and your monthly payments are consolidated and lowered to an amount you can afford to pay.
Secured Loan Process
For a secured loan you will usually need to be a homeowner. Similarly to an unsecured loan, it's a case of shopping around to find a loan to suit your needs, with monthly payments you can afford. A secure loan is a much quicker process than a remortgage and typically takes up to 30 days to process.
The first step to remortgaging your property is to speak to your current lender to see what your options are. From there you can decide whether to remortgage with your current lender, or move your mortgage over to a different lender who may be able to offer you a better rate. It's always a good idea to shop around to see what other lenders can offer.
You can do a mortgage application either in person in, over the phone or fill out an application online. Although the process is longer and more complex than a secured loan, it can save you a lot of money.
If you have a good credit rating you will be offered better interest rates, and likewise if your credit score is low, lenders will offer you a higher interest rate.
Tips for remortgaging:
- Shop around to see what's out there, but don't forget...your current lender won't want to lose you as a customer so see what they can offer you too.
- Take your time and don't go straight for the lender offering the lowest interest rate. They may offer you a low interest rate but they may charge you with very high arrangement and valuation fees, you don't want to end up paying more than you need to.
- Allow plenty of time for the remortgage to go through. An average remortgage takes 3 months to complete so be prepared for this. Get yourself organised and get together all the documents your bank will require in advance to help get the wheels in motion.
- If you are worried because you have bad credit on your mortgage due to late payments, you can get a 'Bad Credit Remortgage' deal, although you may find these hard to find in the current economic climate.
Advantages of debt consolidation
Pro's and Cons of debt consolidation
A new consolidation loan can make it easier to manage your money and give you lower repayments than you have now.
- If you are able to consolidate Credit card, store card, overdraft and loans into a single loan, it means you are:
- Only dealing with one lender
- Only paying one interest rate which can make life much easier and less stressful for you
- Allows you to keep track of your finances.
- You repay debt at your own pace - lower payments.
- One affordable monthly repayment
- The debt is still there - you may have only moved it!
- Spending habits that started it are not addressed (see our free budget planner to manage your spending)
- You cannot borrow your way out of debt.
- Eventually you will run out of willing lenders or simply be unable to meet rising interest and repayments
- It can take a long time to be approved for a loan or re-mortgage.
Types of debt consolidation
There are several types of debt consolidation. You could perhaps look for unsecured personal loans, secured loans, car loans and payday loans to consolidate rising debt repayments. In general there are 3 main types of loan:
Unsecured consolidation loan
- Can be an easier type of loan to obtain
- Means you are only paying interest on one debt
- Providing you don't miss payments it won't have a negative effect on your credit rating.
- Interest on another loan may be very high and not what you can afford
- You may not even qualify for a loan if you have a low credit score, especially if lenders have increased their loan criteria.
- The majority of lenders have tightened their criteria for lending even further since the credit crunch, meaning that a high percentage of loan applications are declined.
Homeowner? Find a loan that could reduce your outgoings by spreading payments up to 25 years with a secured loan.
- You may find that you can get a lower interest rate on a secured debt consolidation loan than on a unsecured loan
- Lower your monthly payments by spreading them over a longer period.
- Secured loans can be very cost effective and can be quicker and easier than remortgaging
- You need to be a homeowner as the loan will be secured against your property. In the event of default, your property may be at risk if you are unable to maintain payments towards the loan.
- You would need to have sufficient equity in your home for the lender to approve your application and provable income to take on the repayments.
- With house prices changing all the time, lenders can be quite wary about lending for a secure loan in the event your house significantly decreases in value.
To remortgage your house means to change your mortgage over to a new mortgage product with a lower interest rate, saving you money, or, changing your mortgage lender altogether. It's a good way to consolidate your debts into one place.
- Interest rates on a remortgage can be much lower than any other type of loan that you'll get.
- A cheaper option than loans or credit cards and means you're not adding to your debts
- The application process for remortgaging is more straightforward now than it has been in previous years and it can save you a lot of money.
- Remortgaging can be an expensive process if you are on a fixed rate and you may incur early payment charges for doing it, so it's not an option for everyone.
- Your ability to remortgage will depend on the valuation of your property, if your house has decreased in value since you bought it, you may be in what is known as 'negative equity'.
- It will also depend on your ability to repay the mortgage. The lender will review your income and expenditure to make sure that you are eligible, and that the new mortgage is affordable.