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Debt Consolidation | Loans and Plans

What is a Debt Consolidation Plan?

Debt Consolidation is the process of taking all your existing debts and paying them off in one go by taking out a personal or secured loan. The idea is that you pay off all your debts with this loan. This then means that instead of making several payments each month you only have to make one fixed monthly payment which means you have less to pay each month so it lowers your monthly payments.

There are a few things that you need to consider before taking out a secured loan to consolidate your debts. The main thing to consider is the risk of taking out a secured loan against your house. You need to be sure that you will be able to make the monthly debt repayments before signing up to the secured loan as your house may be at risk if you default on the payments.
We would only recommend Debt consolidation for debts up to £5000. For large debts around £15,000 up, we would recommend an IVA or Debt Management Plan.

Benefits of Debt Consolidation

• All current repayments on credit cards and loans are converted into 1 monthly payment that is generally easier to manage and keep track of
• Interest rates can be usually lower, so you may have a more affordable payment.
• Less pressure and harassment in dealing with multiple creditors
• In the long run you may save money and you will have a date when the loan will be paid off if you keep to your repayments.
• Could help your credit rating as you will be less likely to default

Disadvantages of Debt Consolidation

• Don't be fooled into thinking you have cleared your debts. You have just shifted the debt to a different payment plan
• Be wary of interest rates. Try to get a fixed rate if you want a payment that doesn't change
• Fees may be payable to arrange the new loan.
• If you have a poor credit rating you may have a higher rate of interest to pay which can mean it is less affordable. Another debt solution may be better for you.
• If you get into difficulties making the new payments it can be harder to deal with only one creditor if you are then looking at a debt solution for example.

Is Debt Consolidation right for me?

If you have several different types of debt, and you are paying out lots of different bills every month, it might benefit you more to consolidate your debts into one monthly payment.

Want a Debt Consolidation Plan?

We do not recommend borrowing your way out of trouble, however, there are times when a loan is the answer, especially if it is to consolidate existing loans or debts at a lower cost.

It can sometimes make sense to take out a loan but before you do let us explore your options with you. It may make more sense to just enter into a consolidation repayment plan with your creditors where you pay an affordable payment each month with a view to clearing all your debts.

Call the freephone 0800 043 0200 to discuss these plans with us now.

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