Debt Consolidation - Complete Breakdown with FAQs, Guide, Advice & More
If you are looking for a way to manage your debts, debt consolidation might be a good idea but I know that you might not fully know what it is or how it works.
For that, I am going to tell you all that you need to know about the debt consolidation loan, techniques to avail it, and its legal and financial details.
Table of Contents
What Is Debt Consolidation?
A debt consolidation loan is a modern refinancing technique that uses finance to pay off various debts. In simple terms, you are asking for money from one lender to clear the debts of existing lenders.
Debt financing is a viable solution for many if used and understood comprehensively. Not everyone needs to consolidate their debts and neither is every loan consolidatable. Therefore, you must make sure that you take a debt consolidation loan only when you need it.
What is the Best Loan to Consolidate?
I have covered this question in depth in my other post, but I must emphasise again that there are many loans that you can easily decide to consolidate, however, I would advise you to consolidate only the short term loans. Such as:
Credit Card Debt Consolidation
The loans that you should consolidate are the ones with high-interest rates, such as credit cards, payday loans, etc. This is since short term loans have relatively 30% to 40% higher monthly repayments of interest.
If you can eliminate these debts, you can manage your monthly repayment easily and as well as the total amount of debt.
Get a detailed analysis of your credit card debt by giving a visit to this article.
Techniques to consolidate debts
Various financing techniques are used to consolidate debts, the most common ones, however, are the taking of loans through companies and banks. These financing options include:
Debt Consolidation Mortgage
This debt consolidation loan helps you pay off your loans, allowing to amalgamate your loans to one lender as a mortgage. This technique is extremely useful if you are facing problems to pay the monthly repayments and if the interest payments are sucking off your money.
Consolidation mortgage will make sure that you effectively start to pay back your principal interest amount.
Remortgage for debt consolidation
Remortgaging is a debt amalgamating technique in which you reset your mortgage terms. It means that you can negotiate or change the amount which you had originally taken as a principal, and hence try to work out a better deal for yourself.
The remortgaging comes at a higher cost due to the increased interest amounts and payments that are attached to it.
Personal Loans
Taking out a personal loan as a debt consolidation loan is also a preferred choice for many. Personal loans can be taken out for the long term hence, the interest payment upon it would be comparatively less.
Before you take out a personal loan for consolidation of debt. Make sure you calculate the annual aggregate APR.
If the APR is lower than your various debt interest repayments, then it would be a feasible option. Otherwise, you might not get any benefit by consolidating your debt.
How Do I Consolidate my Debts?
The easiest way to consolidate your debts and learn the specifics of the interest rate, repayments and the loan amount is to use the Debt consolidation calculator. If you still have any doubts regarding it, please refer to this article.
Debt Consolidation Calculator
A debt integration calculator is an online tool that is widely available on many lending institutions’ sites, this tool helps you get an estimated quote for your debt consolidation loan. It also helps you to decide whether consolidating your debts is viable for you or not.
It shows the detailed financial aspects of the debts and consolidation loan, which makes it quite easier for you to make a decision.
Debt Consolidation Loans Eligibility Criteria
The eligibility criteria vary for every company and bank, so there is no specific outline. However, the most common criteria are that the borrower should be a UK national and over the age of 18.
Apart from these, many institutions require a good credit rating as well.
To read about detailed eligibility criteria, visit this article.
What to Do If You Can’t Consolidate Your debt?
The best way to manage your debts in such a situation is to avail of the grants and offers that are provided by the Government. The Government of the UK believes itself to be a welfare state, hence, they are always ready to aid people who need help!
Get a loan on benefits
You can apply for benefits, which means that the government will pay you either if you are jobless, ill, disabled, or in need of extreme financial help. The government has recently given out loans to NHS workers and people who got economically affected by the coronavirus.
Thus, you can always look to the government if you need help. If you want to find out more about benefits and loaning, you can do so by clicking here.
How Do Debt Consolidation Companies Work?
To consolidate your debt, you will need financing. To provide this finance, debt amalgamation companies play an important role. They work as a lender and earn profits through interest payments. The most widely availed loan through debt companies are:
Bad Credit Consolidation Loan
Some debt companies are working effectively to help people out, they have introduced loan schemes which are good for people with bad credit ratings.
If you are someone who has a bad credit rating and you can’t seem to find anyone to loan you money, the debt companies might be able to help you.
However, with such loan schemes, the interest rates are usually double because of the fact of a high risk of the borrower not paying back.
I have covered this specific loan in my other article as well.
Unsecured Debt Consolidation Loans
The Unsecured Debt Consolidation loans are also a popular choice among many. It provides loans to people without depositing any kind of collateral or security. These borrowing options are usually short term and also demand high-interest payments.
Check here to learn about the top 5 debt consolidation loan companies of the UK.
FAQs
Where Can I Get Free Debt Advice?
You can always refer to government accountants and free financial advisors, but a good option might be to refer to an expert friend or family member. For instance, a lawyer or an ACCA qualified accountant.
Does Debt Consolidation Really Work?
According to surveys, the debt combining plans have helped more than 60% of people get out of debt and achieve financial freedom. It has also helped thousands of people to effectively manage their liabilities and live a stable financial life.
What is the Best Way to Consolidate Debt?
There is no one way to consolidate what you owe. Every person has their preferences, but a good choice might be the debt amalgamation companies and banks. If you can find a lender at a lower annual APR, that will be a good option to look at.
Can you get CCJ loans for consolidation?
After you are issued with a county court judgement, it is going to stay in your financial record for a good while, which is very likely to affect your credit score. Therefore, it is difficult to get a loan after the issuance of a CCJ.
To know more about CCJ loaning, click here.
Nonetheless, it’s not impossible to get a loan after CCJ, you might want to find a direct lender or apply for bad credit borrowing at a lending institution.
Can Government Help Me Get Out of Debt?
Yes! If you are in extreme need of help, the government is there to bail you out. The government provides borrowing schemes and grants to its citizens in order to help them.
I have mentioned all the details for this in my other article, which you can read here.
The financial conduct authority of the UK regulates the grants and loans to make sure the deserving people receive them.
Is Credit Score Important for Debt Consolidating?
Credit score plays an important part in getting your loan application approved, therefore, it is quite important. It also determines the interest rate for the loan and the payback period at times.
What is the best Debts consolidation loan for a property?
Mortgaging it and having a deed of trust might be useful if you are looking to finance a property. Deed of trust is also very usable when buying a property in joint ownership. To learn more about it you can visit my detailed article on Deed of trust.
Conclusion
Debt amalgamation can work wonders if it is used in the right manner. Make it clear that you purposefully use this technique and don’t take any unnecessary borrowing schemes for consolidating your debt.
I hope this post was helpful. If you want to learn more about a consolidation loan, feel free to reach out. I’d love to help!