What is Debt Consolidation?

The Lending Channel
Date Published:30/08/2021

With so many loan products on the market, it makes sense that some people get tangled up in multiple debts. Credit cards, mortgages, overdrafts and other personal loans can quickly escalate and become overwhelming. Debt consolidation can sometimes help to ease the pressure and worry of managing multiple loans at once.
 

Debt in coins
 

What is debt consolidation?


Debt consolidation is the process of combining several debts into a single loan, which helps to streamline repayments and reduce stress.

You might have many loans in different forms, including:

  • Credit Cards
  • Overdrafts
  • Personal loans
  • Store cards

Managing different loans from different financial institutions can quickly become impossible and confusing. Each debt will have different rules regarding repayment frequency and interest rates, and staying on top of your monthly outgoings is crucial if you don’t want to incur penalties.

By consolidating your existing debt, you simplify the process. You’ll have a much clearer idea of the terms of your loan as they will be distinctly laid out for you. There will only be a single interest rate you need to be aware of. And you’ll make a single regular monthly repayment rather than several different ones.
 

Should I consolidate my debt?


Although a debt consolidation loan undoubtedly makes things easier and less stressful, you must pay attention to the overall amount you’ll end up paying. A lot of consolidation loans advertise lower interest rates, but you may end up paying more interest in the long run if the agreed terms of the contract are for a longer period. 

It’s crucial to weigh up the difference between your “total amounts payable”. Add up all of your existing debt as it currently stands, and then compare it to what you would end up paying should you choose a consolidation loan. Please also be aware that you could be charged an early repayment fee for any existing loans, which can have a big impact on the total amount you’ll pay.

Debt consolidation can be dangerous, so it’s absolutely vital you seek the advice of an experienced professional before making any big decisions. The Lending Channel has extensive experience dealing with complex cases, bad credit and multiple debts, and so you can trust us to give you reliable advice. If you decide to go in a different direction, we can help you negotiate with your lenders through a debt management plan. Whatever your circumstances, we are here to help.
 

The pros and cons of debt consolidation


Pros:

  • Often slashed interest rates
  • Easier and more manageable repayment structure
  • Potentially lower monthly payments
  • Good for your credit score
     

Cons:

  • Significant consequences for missed repayments - you could lose your home or other assets if you fail to make payments on a secured loan
  • Often expensive to set up - many lenders charge fees
  • Other options are available, such as a 0% credit card - if your debt is mild to moderate, this might be a better choice
     

What is the application process?


You’ll apply for a loan through a lender as usual. The lender will use your credit score to determine if they’re willing to loan to you. They will dictate what kind of loan and what APR they can offer you.

If you have bad credit, you’ll still be able to apply for loan consolidation, although you won’t be able to get certain cheaper deals. 

Some lenders might offer you debts against your home or car, but be careful - if you fail to make repayments, they could repossess your asset.

The best way to look for a suitable loan is by seeking help from professionals. The Lending Channel is well versed in finding the best deals, even in the trickiest situations. Call us today and let us do the hard work for you.
 

Debt consolidation and remortgaging


It is possible to take out a special remortgage deal called a debt consolidation mortgage. This is where you’ll take out the single loan using the available equity in your property. This involves releasing some of the money that you have already paid off for your home, helping to ease the pressure on your finances.

This mortgage deal might offer you lower monthly payments than your existing mortgage, which frees up money that can go towards paying off outstanding debts. However, if you fail to meet payments, there can be huge consequences, and you could lose your home.
 

Am I eligible for a debt consolidation mortgage?


Your eligibility will depend on a few factors:

  • The percentage of your house you own outright
  • Your income
  • How much you want to borrow from your mortgage lender
     

What are the alternatives?


If you’re happy with your current mortgage deal, it might be better to consider alternatives such as a second charge loan. As the name suggests, this involved you taking out a second mortgage on top of your existing one. This allows you to borrow money without having to remortgage your property. Your debts will be secured against your home.
 

Let us take over from here


If you’re feeling overwhelmed by the many options and nuances involved in making these financial decisions, it makes sense. With so many products on the market, especially under stress, it’s very important to consult a professional broker for mortgage advice before making any decisions.


So give us a call today. The Lending Channel is dedicated to helping our clients find the right deal for them that suits their unique circumstances. We will be pleased to help you.

Category Tags Mortgage Guides, Second Charge Mortgages
The Lending Channel is a member of the National Association of Commercial Finance Brokers (NACFB).
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Tel: 01738 583008 | Fax: 01738 500402

The Lending Channel are authorised and regulated by the Financial Conduct Authority.
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP YOUR REPAYMENTS ON A MORTGAGE OR OTHER DEBT SECURED ON IT

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