How Do Debt Consolidation Companies Work

If you’re feeling overwhelmed by your debt, there may be a couple of options you can explore.

One of the most useful practices for debt management and debt relief that I’ve seen is debt consolidation.

In this guide, I’ll be talking about debt consolidation companies, how they operate, and how they can help you with your debt problems.

Let’s get right into it.

What is Debt Consolidation?

When it comes to your loan payments and money management, debt consolidation is the process where you take out a large loan, equal in value to the sum of your current debts, and then use it to pay your current debts off.

Once that is done, you start the payment process on the lump sum loan that you’ve taken. Consolidation basically allows you to combine your loans into a single loan that you can focus on paying back.

Making loans easier to handle is one of the key reasons that individuals get a personal loan instead of focusing on multiple smaller debts.

If you want a big loan at a better rate of interest than what you owe on your current debts, you’ll have to work on both your credit rating and on finding lenders that will offer you a low interest rate.

All in all, consolidation can be very effective in helping you streamline what you’ve borrowed into a single target and then focus on repaying it to full effect.

What is a Debt Consolidation Company?

Consolidation programmes are organizations that help you merge your small loans into one major loan. 

That way, you don’t have to think about keeping track of several lenders’ fees, because you can concentrate your energies on repaying one loan. 

These organisations come with varying fees, offers, packages, and interest rates.

If you’re looking for a consolidation company to help you with debt management, make sure you go to a company that is authorised and regulated by the financial conduct authority, the FCA. 


The service you go to for a consolidation loan, be it for credit card debt, or repayments on other debt types, will most likely ask you to provide a few details about your finances, the money you owe, the payment plan you currently have, your history, and a few other details.

Then, they’ll tell you about their best payment plans, how they can help you with consolidation, and more.

How Do Consolidation Organizations Work?

The service you go to for loan, be it for credit card debt, or repayments on other debt types, will most likely ask you to provide a few details about your finances, the money you owe, the payment plan you currently have, your credit history, and a few other details.

How Do Debt Consolidation Companies Work

Then, they’ll tell you about their best payment plans, how they can help you with consolidation, and more.

The organization will most likely ask for a “setting up” fee, that you’ll be required to pay in order to get access to their plans.

After that is done, it’s a matter of interest rates and APR. If you live in the UK, you can search and find multiple consolidation organizations on the internet. You’ll find some that offer very minimal APR and others that ask for much higher APR.

What Should I Know About Debt Consolidation Companies?

In this section, I’ll be addressing a few things you need to know about consolidation institutes.

  • Consolidation organizations mostly charge you APR on what they lend you

Consolidation organizations have fixed APR mentioned on their websites and portfolios.

If they lend you, you’ll have to pay a certain amount of interest on what you get. You don’t usually get it for free.

  • Consolidation organizations offer a variety of useful financial guides

If you’re registered in England, the consolidation organizations you go to will offer a variety of useful guides and content to help your journey.

You’ll find useful courses offered, financial help books, worksheets, planners, and a lot more.

Even though most organizations charge a fee, they grant you access to a huge amount of useful content that you can take help from. 

The best way to do so is to take a few courses and keep track of things such as consumer credit using their guides and workbooks. All in all, it’s a pretty good return on your investment.

FAQs

Should I go to a debt consolidation company?

It depends.

If you want your consolidation procedure to be a lot more formal that it is without consolidation services, you should go to a consolidation organization.

If you don’t think you should be paying additional charges to consolidation companies and would be better off contacting independent lenders, you can do without a consolidation organization as well.

Should I go to a debt consolidation organization with bad credit?

You certainly can.

There are consolidation organizations that offer consolidation specifically to borrowers with bad credit.

They do have certain criteria however, and can impose strict financial restrictions on what they give you.

If you have bad credit, you should be working on improving your credit file.

Can I get an unsecured debt consolidation loan?

Yes, you can get unsecured debt consolidation with monthly repayments.

However, getting unsecured consolidation can be very difficult if you have poor credit.

While you can get clients and to offer you unsecured loans, every lender has a unique set of criteria that you need to meet to get them to lend you.

How many debts am I allowed to consolidate?

There’s no real limit on how much debt you’re allowed to consolidate. You can hypothetically try to combine as much debt as you want.

However, there is a limit on the types of debt you can consolidate. You can easily consolidate certain types of debt, such as debt on credit cards, overdrafts, and other types with monthly payments.

Is debt consolidation a legal procedure?

No, consolidation is not a legally binding procedure. You don’t have to appear in court, you’re not bound by the law, and it’s not an insolvency service, like bankruptcy or IVAs.

However, if you actively commit fraud in matters related to money, be aware that you may face court action and penalization.

Wrapping it Up

Consolidation organizations take a procedural route to helping you go debt free.

However, not all organizations were created equal. Some organizations can be exploitative, costly, and inefficient. 

You need to learn to filter your way through such organizations and find one that corresponds to your specific needs and wants.


Ultimately, your goal is to pay off your loans, and you need to find an organization that can help you with that as efficiently as possible. If you need more help with your payments and repayments, check out my website.

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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