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Can I get a Loan to Clear my Debts? Guide & FAQs

Get Loan to Clear Debts

Can I get a loan to clear my debts? If you have multiple debts this may be a question you have asked recently. 

The good news is that it might be possible to use a new loan to pay off multiple other debts. This could have multiple benefits and even save you money. Learn more about using a loan to clear debts here. 

Can I get a loan to pay off existing debt?

It is possible to take out a loan to pay off other loans and credit cards. This is known as debt consolidation, which can make monthly debt repayments more manageable and potentially save money by paying a lower interest rate. 

You will need to be approved for the right amount of credit in the new loan to clear your other debts, factoring in early repayment fees and other costs. If you have a poor credit rating because of arrears, it may not be possible to take out a new loan with a better interest rate.

Don’t worry, here’s what to do!

There are several debt solutions in the UK that can be used to improve your finances. Choosing the right way to tackle your debt could save you time and money, but the wrong one could cause even more harm

It’s always best to find out about all your options from a professional before you take action.

Fill out the 5 step form to get started. 

How does debt consolidation work?

Debt consolidation works by taking out new credit to pay off your other debts in full. It can be achieved by taking out a new loan or if you just want to clear credit card debt, you could use a balance transfer credit card. 

Because you have merged multiple debts into one new debt, it should be easier to budget and keep on top of monthly repayments. This may prevent further missed payments and other debts. 

But the main reason people use debt consolidation methods is to save money. If you can pay less interest on the new loan or credit card compared to the interest you pay now, you can make savings on repayments. However, you’ll also need to consider additional fees and costs during the debt consolidation process, such as any early repayment fees you might have to pay.

What type of loan can I use to clear my debts?

A debt consolidation loan is specifically offered to help people pay off other debts. However, you may be able to use other loans not advertised for debt consolidation purposes, such as generic personal loans. 

A debt consolidation loan may be unsecured or secured against one of your assets, such as property. Secured debt consolidation loans may offer better interest rates and make debt consolidation possible, even with a poor credit rating. But this is not guaranteed. You can still be denied a debt consolidation loan.

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Is all this information starting to feel overwhelming? Don’t panic! There’s plenty of help available. You can get started below.

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Debt consolidation example

Debt consolidation is easy to understand with a simplified example. 

Let’s imagine you have two loans and you need to pay £1,000 back on each of them. So you owe £2,000 in total. You are currently playing interest of 4.5% and 4.7% on these loans.

You decide to consolidate these debts by taking out a new loan of £2,000 to pay them both off. These loans do not have any early repayment charges or other fees, so you only need to take out an amount equal to the total debt.

You get approved for a debt consolidation loan worth £2,000 on a fixed interest rate of 4.5% and use the money to clear the other loans in full. You now only have to manage one monthly repayment and you pay slightly less interest than previously, saving you some money. 

Should I do debt consolidation?

Debt consolidation might be an effective way to deal with your debts. But it is best to receive debt advice before making a decision. There could be a more suitable and beneficial debt solution for your circumstances. 

You can get free debt advice from UK debt charities, such as StepChange. 

How do I get out of debt with no money?

There are ways and debt solutions to get out of debt if you have no disposable income, and you might even be able to write off all or some of your debt. One potential solution is to use a Debt Relied Order (DRO), which is a debt solution for people with little disposable income and no assets in their name. 

How does a Debt Relief Order work?

A Debt Relief Order prevents all your creditors from contacting you to make repayments for a year. If your financial situation does not improve at the end of the year, all your debts are written off. It is a method used by people who do not have enough money to pay their debts back. 

Can I get a loan to clear my debts? (Quick recap)

It might be possible to use a new loan to clear multiple existing debts. You’ll need to ensure this is a suitable debt mitigation strategy by getting debt advice first, and you’ll need to get approval for the new loan.

Read more about loans to clear debt here

You can learn lots more about debt consolidation loans and how they work on our dedicated debt consolidation guide. Read this if you are thinking about taking out new credit to consolidate debts. 

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*Note: This is a real life example based on a customers’ savings data in October 2020.

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