Tackling multiple debts simultaneously is a difficult but manageable burden. If you are going through such financial stress, do not worry. There are options available for you that greatly impact your financial stability. Today we’re taking a look at help with debt consolidation UK.
Debt Consolidation will help you to lay off the ever-increasing pressure from creditors. So, sit back and relax. Dig into this guide to learn about this debt management option you could consider.
Understanding debt consolidation
Debt consolidation is the act of moving all debts from multiple sources to a single account. In simple words, it is combining all your debts under one loan. Your debts will neither disappear nor be paid off fully but they will combine into a single account for your ease of management.
Looking to consolidate your debt with a loan?
Like any financial help, you must go through the application process. Every lender has their own requirements, some stricter than others. You will need to fulfil their criteria in order to get accepted and the loan to be transferred.
The lender will run a credit report on you. Based on your credit report results and application form, your lender will decide if they want to lend the funds. If your record meets their expectations, the lender will lend you the loan. The rates of the loan offered are often decided mutually and in accordance with the application.
If, by any chance, you have a low credit score, you may need help to get a good rate. The lower your credit score the more difficult it becomes to get approved. But do not stress over it, there are numerous ways in which you can enhance your credit score.
If you need help with debt consolidation (UK) you can speak to a trained advisor using our free solution finder. They will look at your financial situation and point you in suitable direction to help with your debt.
What is the purpose of a debt consolidation loan?
Debt consolidation acts to help pay-off to some or even all existing debts. For instance, if you are experiencing multiple debts like credit card debt, personal loan debt, and an overdraft, debt consolidation will help you to pay all these debts under a single account. It will save you time managing multiple debts and provide a systematic way to deal with them.
How do loans for debt consolidation operate?
First, you must estimate how much you must borrow to pay off all the debts.
Once you decide the total amount, the next step is to process the application. Fill out the application with the necessary information and proceed further.
After successful acceptance of the application, the loan will be granted.
You can then use this money to pay off your debts. Your debts will now be in one place and will be easy to manage.
Debt consolidation may also involve setting up a single direct debit from your bank. With this, you can repay each month timely.
What points should you consider when choosing a debt consolidation loan?
The three things that you must understand while choosing debt consolidation are:
- The total amount of debt you have accrued
- Charges to set up debt-consolidation loan
- Consequences of debt consolidation loan on your credit score
Here are some other points to consider before taking out a debt consolidation loan:
Remember, do not apply for a loan that is more than actual debt first. This could snowball you into more debt than what originally planned for.
Always discuss the set-up fee first, sometimes hidden charges can be applied to the loan. You must make sure that you will be charged a certain percentage only and carefully look at the fees involved with defaulting or paying the loan back early.
Another thing that should be remembered is that a debt consolidation loan could impact your credit score. I.e. your score will be impacted negatively. This might make it more difficult to get credit in the future.
How to consolidate debts with bad credit?
Low credit scores can also secure debt consolidations. However, you may need to assess what type of loan you are applying for.
Secured loans have a higher chance to get approved vs personal loans. To minimise the risk for the lender assets, like houses or cars, are often used as collateral when taking out a secured loan. If the loan gets accepted, you risk losing these assets if you fail to repay on time.
Personal loans have little collateral meaning there is a higher risk for the lender if you were to default on the repayments.
Advantages of debt consolidation
Debt consolidation will bring you several advantages. Here are a few:
- It will simplify your budgeting.
- You can set one monthly goal for repayment rather than multiple.
- It helps you to bring a clearer view of your debt.
- Debt consolidation loans usually have lower interest rates vs personal debts.
Disadvantages of debt consolidation
There are several disadvantages of debt consolidation as well, these must be considered.
- It can highly damage your credit score if you do not repay the loan in a timely fashion.
- If you end the credit arrangement early, the lenders could charge you a free.
An alternative to debt consolidation: Credit cards with balance transfers
Credit cards with balance transfers are an alternative to debt consolidation.
With a balance transfer credit card, you can transfer your debt to a credit card offering 0% interest. When doing this, you’ll gain from paying no interest for a predetermined promotional time and streamlining your repayments.
However, be mindful of the following first:
- There can be a first-time balance transfer fee.
- To maintain the promotional rate, you must make at least the minimum payment due each month.
- You’ll often be switched to the business’ regular pricing once the special time ends. To prevent incurring interest, it’s better if you can pay off the card before this.
- Your credit score may be impacted if you close outdated credit cards.
Seek help from free debt help providers
Various debt-help charities in the UK will help you on this journey. Reliable organisations are StepChange, Citizens Advice, Christians Against Poverty, and National Debtline.
They offer free services like devising debt management plans, IVAs and sometimes bankruptcy, if applicable. Some debt charities will even talk to your creditors on your behalf to help lessen the stress of debt.
Always make a financial decision by first talking with a financial advisor or a trained professional. It is always a safe choice especially when your personal finances are involved.
Debt consolidation acts as a helping hand if you are dealing with multiple debts. However, it can impact your credit score and if not used correctly actually hinder your debt recovery. If you’re unsure on the best way to process, speak to our trained advisors using our free debt solution finder.