Do you want to know how to remortgage for debt consolidation and if it is the right thing to do? You clicked on the right article because we have remortgage debt consolidation advice here. Thousands of people in the UK look into if they can remortgage to pay off debt, but it is not for everyone.

Let’s get straight into it…

What Is Debt Consolidation?

Debt consolidation is exactly how it sounds. It is the process of consolidating the number of debts you have. You may have three debts and put them together into one debt, or you may have six debts and consolidate them into two debts. 

People don’t just consolidate their debts for the sake of it. They do it because they can access favourable repayment terms on their debts by consolidating them, and sometimes they get the added bonus of a period with no interest to pay.

What Is Remortgaging for Debt Consolidation?

Some of the popular ways to consolidate debts are to do a credit card balance transfer and move multiple credit card debts onto one new credit card, or to do take out an unsecured loan to pay off all existing loans. 

You can also remortgage for debt consolidation, but if you do want to remortgage to clear debt, there is a lot to consider.

It works by remortgaging your home and taking out a new mortgage, which releases a lump sum. You then use this lump sum from the new mortgage to repay your debts instantly. By doing this you avoid having to pay interest on these debts that may have spiralled into thousands of pounds. 

Remortgaging for debt consolidation could get you out of debt fast and save you money.

On other occasions, remortgaging could simply reduce the costs of your ongoing debts and prevent you from accumulating more debt.

The Benefits of Remortgaging to Clear Debt

The benefits you might experience from remortgaging debt consolidation could be:

  • Making your debts affordable
  • Avoiding further debts
  • You might get a better mortgage deal than your current one (depending on how much of the home you have paid off already and current market rates)
  • A lump sum could clear all your debts overnight

The Disadvantages of Remortgaging Debt Consolidation

But remortgaging for debt consolidation may also have some negative consequences, namely:

  • Your mortgage repayments could increase
  • Your mortgage term may increase, meaning you pay back for longer (and therefore more!)
  • This could delay your retirement 
  • You might be subject to multiple fees, especially if you are switching mortgage provider.

From face value, remortgaging to consolidate debt looks like a viable option. But there is a reason why Martin Lewis at Money Saving Expert has been waiving lots of red flags about it. He doesn’t believe it is always the wrong thing to do, but he explains where the problems lie. 

Getting Help with Your Decision

This is arguably the most serious and difficult way to consolidate debts. And it requires some careful thinking and research. It is recommended to use a mortgage advisory firm to help you understand all of the details, including any potential pitfalls.

There are some mortgage advice firms who specialise in remortgaging to clear debts, and they should be consulted if you want to know more.

Alternative Debt Consolidation Methods

If you discover that remortgaging is not beneficial, you might want to explore other debt consolidation methods. As mentioned earlier, these are:

  1. Credit card consolidation
  2. Unsecured loan consolidation

You can take out a new credit card and transfer the balance of your existing credit card debts to this new credit card. Alternatively, you could take out a new loan and use this loan to pay off your other debts.

These can be tricky to utilise if you have a bad credit rating because you might be denied the new credit card or loan. If that is the case, you still have many other options.

In one way, remortgaging for debt consolidation is a subcategory of loan debt consolidation. The only difference is the loan you are taking out is secured against the property you live in.

Alternative Debt Solutions You Could Use

Most debt consolidation techniques are used as early strategies to avoid debts from materialising and getting out of control. Remortgaging to clear debt is arguably one of the debt consolidation techniques that may still be worthwhile at a later stage.

But if your debts are getting out of hand and remortgaging is also not an option, you could use a debt solution.

What Is a Debt Solution?

A debt solution is either a formal (legally binding) or informal agreement between you and your creditors. There are multiple types of debt solutions but all of them are designed to make debts affordable by spreading out repayments. Some debt solutions don’t even require debt to be paid back at all, but there are other consequences if you own a home.

Who Is Applicable for Debt Solutions?

Debt solutions have been designed for different situations and can be applicable to almost anyone. For example, Debt Management Plans are ideal for people with smaller debts and an Individual Voluntary Arrangement (IVA) is beneficial for people with multiple bigger debts they can’t get a grip of. However, IVAs are not always best for homeowners. 

Where Can I Learn More About Debt Solutions?

You can find out more about the many debt solutions at Money Nerd. All of our guides, reviews and posts are written in an easy-to-understand way without confusing terms. Take a look now to see what your other options are.

Because remortgaging for debt consolidation purposes isn’t for a lot of people.

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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