Debt Consolidation

Debt consolidation involves taking out one or more 'further loans' to repay all, or most, of your debts.  The amount you are able to borrow will depend upon your ability to meet the required instalments or whether you can offer personal assets or a guarantor to secure your borrowings.

The rate of interest charged will be at a market rate which is likely to reflect the risk of your default to the lender.

Debt consolidation is something you can arrange yourself or with the assistance of an independent financial advisor. 

Debt consolidation may be combined with a debt management plan to further reduce your regular instalments over an extended period of repayment.  Neither Debt Consolidation nor Debt Management Plans require your creditors to write off some of your debt.  These schemes are designed to assist your cashflow by allowing you to repay your creditors, in an organised way, over a much longer period of time.

Advantages

• The number of creditors you have to deal with is reduced.
• A number of regular payments can be combined into one. 
• Interest charges may be less.
• Payment commitments are simplified and are more manageable. 
• Your credit rating should not be affected.
• An insolvency process is not required. 

Disadvantages

• Interest charges may be higher.
• The lender's terms may be stricter than those of the creditors you are currently repaying.
• You may be required to secure your further borrowings against a personal asset eg. your home.
• There may be default and/or early redemption charges on your 'further loans'.
• You may be required to pay loan protection premiums.
• Unlike an Individual Voluntary Arrangement (IVA) your debts are not reduced, you just replace one set of debts with another.

Best suited to…

People who are secure in their job, who prefer to manage their debt repayment and are not insolvent.  Those with equity in their property, wishing to consolidate debt into one loan, may find that their existing mortgage lender offers the best deal.

Use our Self-Assessment Debt Test for an immediate indication of whether debt consolidation may be right for you.