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Debt consolidation

Debt consolidation is repaying several of your existing debts with a new debt consolidation loan

In a nutshell, Consolidating debts usually involves taking out new lines of credit to combine and repay your existing debt, using a personal loan or credit card, for example. If you consider debt consolidation loans for bad credit, you may want to seek advice from debt experts to find the right forms of debt consolidation loans for bad credit in the UK and the correct approach for debt consolidation loans for poor credit.

What debt problems is Debt consolidation loan suitable for?

Debt consolidation provides bad debt help for borrowers with bad credit or poor credit, who can still access reasonably priced credit, and who can be responsible with their finances moving forward.

Our debt expert’s opinion on the pros and cons…

Advantages of Debt consolidation

  • Debt consolidation can reduce the interest that you are paying on your debts. It can also reduce the monthly payments you’re making and the number of creditors you owe money to.

Disadvantages of Debt consolidation

  • While consolidating your debts can be an effective approach for progressing to becoming debt-free, it can equally make your financial circumstances worse if you don’t act responsibly with your finances in the future.
  • You may also need to pay additional fees for consolidating your debts, such as credit card balance transfer fees.
  • If your debt consolidation loan is secured against your home, you must keep up with the repayments, otherwise, you’ll risk repossession.

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FAQs – Debt Consolidation

  • Is debt consolidation right for me?

Debt consolidation may be right for you if:

• You owe multiple creditors
• You’re struggling to keep up repayments
• The total amount isn‘t too large (e.g. a personal loan could cover it)
• You have a reasonable credit score
• You’re borrowing from relatively high-interest sources (e.g. credit cards and banking overdrafts)

  • What’s the difference between an unsecured loan and a secured loan?

Secured debt consolidation loan for bad credit are ‘tied’ to an asset – such as property. This asset acts as insurance for the lender that you’ll keep up with repayments. Should you fall behind with the payment schedule, you run the risk of losing that asset. If the sale of that asset doesn’t cover the balance owed, the lender may pursue further action to recover the remainder of the debt.
In contrast, unsecured debt consolidation loan for poor credit don’t involve any assets. If you fall behind on an unsecured debt consolidation loan, the lender will follow the usual process for chasing the debt. This begins with letters and phone calls, could move on to a debt collection agency, and may finally reach court.

  • Is debt consolidation a guaranteed solution to my debt problems?

No. It’s absolutely critical that when consolidating your debts for bad credit, you regain a good grip on your income versus expenditure, and that you aren’t tempted to run up your lending again (this can be especially risky were debts that were repaid were credit cards or overdrafts).

  • What’s the difference between a debt consolidation loan and debt settlement?

Debt consolidation ‘pools’ all of your debts which are then repaid by a new form of credit with the aim of simplifying your outgoings and hopefully reducing the interest and fees that you’re paying.
In contrast, debt settlement is where you make an offer to a creditor to repay the debt at a set amount, and they agree to write the remaining debt off.

  • Can debt consolidation save me money?

Yes, debt consolidation loans for poor credit will save money, but it does demand a careful approach. You’ll need to be informed as to how much you’re currently paying for your debts (including interest and fees), and you’ll need to credit score for a product that offers a lower interest rate than what you’re currently paying.
That said, if you choose to stretch your payments over a longer-term, you could end up paying more in interest (though the monthly repayments could be lower).

  • I have bad credit; can I still consolidate my debts?

It will be more difficult to secure a reasonable debt consolidation loans for bad credit. While you may have the option of secured lending, more realistically you may need to look at an alternative debt solution, such as a Debt Management Plan or an IVA.

  • How is a debt consolidation loan different from debt management?

Debt management doesn’t require you to borrow money to repay your existing debts. Instead, it involves working with your creditors, alongside an impartial third party, to negotiate a repayment plan within a reasonable time frame.