Debt Consolidation

Learn more about Debt Consolidation

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What is Debt Consolidation?

You apply to a lender for a loan to reorganise, or clear your debts. These loans are often advertised as ‘consolidation loans’. This means you swap some or all of your creditors for just one creditor.

If you own your home, the lender will probably want to take a charge on it. A charge on your home means that if you don’t repay the debt the creditor has a claim on the proceeds if the property is sold.

You should seek independent advice about whether this would be in your best interests. You should shop around for the best deal from high street and internet lenders. If you have a poor credit rating, you may not be able to get loans on the best terms.

How does Debt Consolidation work?

A consolidation loan will only help if:

  • It is used to pay some or all of your existing debts
  • The repayments on the new loan are no more than those you are already making towards your existing debts, and you can afford to make them

Otherwise, the new loan will simply add to your debt burden and make your problems worse.

You will also need to look very carefully at how long the loan will take to repay; what interest you are going to have to pay compared with what you are currently charged; and what charges or penalties there are, for example for late payments.

Benefits and Considerations of Debt Consolidation

Benefits of a Debt Consolidation

  • If you can raise sufficient funds to pay all your creditors you will make one monthly payment on one loan rather than many payments to different creditors
  • Your monthly payments should be lower or at least not any higher
  • The term of the loan is defined

Considerations of a Debt Consolidation

  • Upfront arrangement fees may be payable for arranging the loan. Ensure you ask for details of all fees
  • If your credit rating is poor you may not be able to obtain a loan or may be offered poor terms such as a high interest rate
  • If you are a homeowner and the loan is secured on your home then your home may be repossessed if you default on the monthly payment
  • Consolidation loans are often offered over a longer period of time than your original debts. This could mean that even if the interest seems reasonable you may end up paying more than your original amount owed due to the length of time you have to repay
  • If you don’t clear all your creditors with one loan the new loan is likely to worsen your debt problems and make it more difficult to make all your monthly repayments

Other Debt Solutions

Bankruptcy

Debt Relief Order (DRO)

Debt Management Plan (DMP)

Individual Voluntary Arrangement (IVA)

Administration Order

Negotiated Agreement with Creditors

This page is for informational purposes only. At UK Debt Service we specialise in Individual Voluntary Arrangements (IVA), which is an alternative debt solution to Debt Consolidation.

This page is for informational purposes only. At UK Debt Service we specialise in Individual Voluntary Arrangements (IVA), which is an alternative debt solution to a Debt Consolidation.