Should I Consolidate My Debts?

Many people in the UK have a range of different types of debts typically including credit cards, mortgages, store cards, overdrafts and unsecured loans.  Consolidating these debts into one loan with a single monthly repayment can make debts easier to manage and reduce the repayment amounts.

What is Debt Consolidation?

Consolidating debts involves taking a number of different debts and repaying them by taking out a single loan.

Are There Different Types of Debt Consolidation?

Yes, the most common is the credit card consolidation.  If you have several credit cards, it may prove difficult to manage all of the cards with different rates of interest, credit limits and monthly repayment dates.

To attract new customers, some credit card companies offer very preferential rates on transferred balances.  On occasion these rates are as low as 0%. 

Before you enter into of one of these deals remember to check the exact terms of the deal.  Ask questions including:

• How long the low interest rates last?
• What will be the interest rate at the end of the introductory deal?
• What the interest rate will be on any new borrowings?
• Are there any other costs or charges involved?

A second form of consolidation is to take out an unsecured loan.  Usually this loan will be for a fixed period.  With an unsecured loan the lender will not take security against your home or other assets.  You will, however, need to provide evidence that you can afford to meet the monthly repayments.

The final a major form of consolidation is a secured loan which may be either a first mortgage or be a second or subsequent mortgage.  An advantage of secured loans is that it is possible to find lower rates of interest than for unsecured loans but your home may be at risk if you cannot keep up with the repayments.

How Could Consolidating My Debts Work for Me?

If you are struggling to keep up with your monthly repayments or are concerned about the level of interest which you are paying and the number of companies to which you have to make repayments, consolidating your debts is an option which you should consider.  Benefits include:

• a lower rate of interest may enable you to pay of your debts more quickly
• reducing monthly repayments may help you to avoid missing a payment and adversely affecting your credit score
• having only one payment to make each month makes budgeting easier and can reduce the time which you need to spend on managing your finances

When Can Debt Consolidation be Unhelpful?

Before making a final decision to consolidate debts it is important to get detailed debt counseling.  A debt counselor will look in detail at your personal circumstances to help you to determine the best course.

Times when debt consolidation may not be helpful include:

• if you cannot consolidate all of your debts.  There is limited value in consolidating just some of your debts.  You will not, for example, getting any of the benefits of being able to budget your spending more easily.
• If you could not afford to pay the monthly mount which would be due to repay the consolidated debt.
• If you are not committed to staying within a budget.  Taking on a consolidated loan and then building up new debts will only make your position worse.

Key Questions to Ask?

Even if you need to act quickly make sure that you ask questions and understand what you are doing in detail before you sign up to consolidating your loans.  Key questions include:

• Will your company offer counseling to help me to ensure that this is the right course of action for me?
• How much will I need to pay each month?
• How long before I have paid off my debts?
• What is the interest rate?  Is this fixed or could it go up (or down)?
• Are there any fees or other charges which I need to pay?
• Are there any fees for early repayment if things go well?

What Next?

If consolidating your debt seems like an option for you, contact some of the UK consolidated loan providers and ask for advice and a quote.

• Imagine Finance
• Money Matters
• First Plus

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.