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Financial difficulties can lead to credit card debts and unsecured loan repayments mounting up rapidly, resulting in unmanageable debt problems. Debt consolidation advice is one potential answer, offering as it does the opportunity to condense all your debts into one monthly payment.
A debt consolidation loan is for the specific purpose of paying off a number of debts, especially those with high interest rates such as credit cards, and replacing them with one loan and one monthly repayment. It typically offers a relatively low interest rate and longer repayment periods, giving the borrower a chance to get their finances back on track.
A lender will usually require the debt consolidation loan to be secured on property, although there are unsecured consolidation loans available. The advantage of a secured loan is that it typically comes with a lower rate of interest than unsecured loans, but this does mean your property may be at risk if you do not keep up with payments.
A lender will normally assess your equity or collateral to determine how much they are prepared to lend. If there is enough to cover your debts they will generally deal directly with your creditors to repay what you owe. From then on you make just one payment a month to repay the debt consolidation loan.
With a debt consolidation loan you could be better off at the end of each month because it improves your cash flow by lowering the amount of money going out on debt repayments. If you make all of the payments on time it can also help to improve your credit rating if this has been affected by late payments in the past.
There are other benefits on top of the convenience of replacing all your monthly repayments with one affordable monthly payment. If you have been behind with payments on other loans it will mean the end of those creditors chasing you. With a more favorable interest rate you could also find you repay less in the long run than you would have with credit cards or high interest loans.
As with any financial commitment, debt consolidation needs to be examined carefully, ideally with the help of debt specialists like ClearStart debt consolidation loan advice. The loan will represent a new line of credit and as it is secured you will need to ensure you can meet the repayments in order not to risk losing your property. Sensible budgeting after the loan will help you steer clear of running up credit on the cards you have just repaid.
It is essential to look carefully at the options, especially the Annual Percentage Rate (APR) being charged by lenders which must by law be shown on their advertisements. The lowest APR is usually the best but make sure any other costs have been clearly outlined and explained. The amount you have to pay each month, the overall period of the loan and the dates on which payment must be made should be clearly shown on the loan agreement.
To qualify for a debt consolidation loan you will usually need to be in full-time employment and have some collateral such as equity in your property. People with a poor credit record, however, may find it difficult to get a loan approved.
If you do not qualify there are other options. With an Individual Voluntary Arrangement (IVA) you enter into a legal agreement with creditors to repay a portion of your debt over a specific period of time. If you own a property with equity in it you could remortgage with another lender to release funds. And there are Debt Management Plans in which you make one payment per month over a longer period. If all else fails there is bankruptcy but this has serious consequences and should only be considered as a last resort.
If you think a debt consolidation loan or one of the other options could be the answer for you contact the specialists at ClearStart for no-obligation, objective advice on the best way forward.
As well as debt consolidation there are other ways to address serious debt problems and ClearStart is able to help with them all.
Debt Management Plans (DMP):
We negotiate with your creditors to secure lower, affordable payments over a longer period. We also try to have interest and charges frozen.
Individual Voluntary Arrangement (IVA):
A legally binding agreement with your creditors, with affordable monthly payments which stop after a fixed period of time.
The last resort for people with serious debt problems. It allows you to make a fresh start but has serious consequences and must be considered carefully.
For objective, no-obligation advice on which option is best for you contact one of the specialist advisers at ClearStart. We will help you make a new start on your finances.
Why are Debt Consolidation Loans cheaper?
It depends what you mean by cheaper. A Debt Consolidation Loan lasts many years and is larger than the individual debts it pays off. That means lenders are willing to offer a lower interest rate and your monthly payments will be lower. The amount you pay in total can still be very high, however, a Debt Consolidation Loan isn’t always ‘cheaper’ if you work out what you pay over its entire period.
Is there a limit to what I can borrow?
Unsecured debt consolidation loans are limited by law to £25,000. ClearStart debt consolidation advice suggests if you need to borrow more than this you would need to consider re-mortgaging, with a loan secured against your house.
How can I tell whether or not I can afford it?
You will need to work out a monthly budget, including all of your essential expenses such as food, rent, clothes and travel. If there is a realistic amount left over to pay back a consolidation loan then it may be a good choice.
Is there a credit ‘blacklist’?
Even though creditors will sometimes threaten you with a ‘blacklist’ the reality is that there is no single, central list of high risk borrowers. Each lender will maintain its own lists, however. Bear in mind too that some things such as missed payments or legal proceedings will affect your credit score, and this can be accessed more widely via credit agencies such as Experian.
My finances are now sorted and I can only spend what I have and I watch every penny. I have peace of mind that my finances are being managed by professionals and I feel a lot happier. The service is excellent, goodness knows where I would be now if I didn't get the help I needed.
I was worried about interest charges and not being able to make the minimum payments on my debts. After being in the plan for only six months I am now feeling brilliant and can see the light at the end of the tunnel. I have found the service I have received excellent.
I still felt anxious even when the DMP was accepted, however starting the second year I am feeling more relieved that we have managed to progress. All credit cards have now gone and I am much more cautious with my spending. I am feeling greater relief month by month.