Thinking of consolidating your debts but don’t know the procedure?

I’ve prepared a guide in which I explain the different programs you could try out as well as the best options for you to consider.

Let’s dive right in.

What Are Debt Consolidation Loans

A consolidation loan is combining two or more loans into a single one. The loans combined can range from credit card loans to a personal loan. One of the main advantages of a consolidation is that it allows you to negotiate a lower interest rate.

This loan basically simplifies things for people by reducing the total number of lenders they are dealing with down to just one. With a consolidation loan, you only have to worry about having to pay back a single loan instead of several. This makes money management much simpler.

If you cannot afford the current monthly repayments you have to make, you can reach out to your creditors to convince them to reduce them and get things sorted out before the repayments get too much for you.

Consolidation loans are usually given by companies. These companies can be very picky about who they are giving low interest loans to. That is why they have a minimum credit score requirement. If you don’t meet the requirement, you won’t get the loan.

Pros And Cons Of A Debt Consolidation Loan

A consolidation loan can be beneficial for you but it really depends on your circumstances. 

Firstly, a consolidation loan is taken for unsecured debts such as personal loans and credit cards. Make sure you are taking professional advice according to your situation before you make a decision.

One pro of this loan is that your finances get simplified. You will now have to worry about one payment instead of several. Also, your creditors will be lessened. Instead of having several creditors, you will now only have one.

Another pro is that you might be able to negotiate a lower rate on your high interest debts. That way you’ll have to pay less to get the same amount of money. 

A con is that consolidation companies give out loans on the basis of your credit rating. If your credit rating is not high enough, you won’t get the loan.

Options For You To Consolidate Your Debt Free

There are a number of government services and private companies registered in England. Remember, any financial company that you choose must be authorized by the Financial Conduct Authority.

Also, before you actually get a loan for yourself, always remember to do your research about the debt company. For instance, check their website and look for customer reviews. 

Just the content on a website’s home page gives you enough insight to make a good decision regarding that company.

One option for your consolidation loan is a credit card balance transfer. When you switch your credit card companies, you get an initial interest free period in which you get charged zero interest for your loan.

To consolidate your debt, you can definitely take advantage of this option.

But, keep in mind that most of the debt consolidation companies need a 3-5% of the total amount being transferred as payment for the service.

Post Office Personal loan:

This loan is provided by the Bank of Ireland. Since a registered office working with the government is offering debt consolidation, this comes with very low rates attached to it.

The requirements to get the debt are specific though. You can only get consolidation ranging from £1,000-£25,000. The debt must be paid back in between a duration of 1 to 7 years. 

Also, there is a minimum income requirement as well: £12,000. The minimum age to apply is 21 years. 

For more information, you can check out their website to see if this option works specifically according to your circumstances.

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Frequently Asked Questions (FAQs)

Does A Debt Consolidation Loan Hurt Your Credit Score?

Yes, a consolidation loan remains on your credit file for up to seven years. Since a consolidation loan is technically a breach of your initial contract, it will appear on your credit report for some time and will bring your score down.

Is It Smart To Consolidate Debt?

Yes, debt consolidation is a good option to consider but it is not for everybody. Firstly, if you can’t negotiate a lower interest payment on your loan, you are actually suffering loss from the situation and your bank account will take a hit.

Secondly, you probably won’t get debt consolidation if you have a bad credit history. So it is not feasible for people who have had a bad experience with debt.

What Is The Safest Way To Consolidate Your Debt?

The safest way to consolidate debt is to consolidate it in such a way that you take on no additional loans.

Only then can you ensure that your debt consolidation attempt is actually beneficial for you.

Do Debt Consolidation Loans Have An Interest Rate?

Yes, debt consolidation is like normal debt. You have interest payments for those as well. The only time you won’t get interest is if you refinance your card. Only then will you have an interest-free few months before interest starts applying again.

Afterword

Consolidation loans have very specific requirements attached to them. They usually have a minimum and maximum amount as well that you can borrow from the lender.

If you need more help or advice, feel free to contact me on the email address given below. I’ll do my best to guide you.

Good luck!

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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