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How Do I Consolidate Debt in the UK?

Consolidating debt can be a complex process, particularly if you try to accomplish it alone. We may be able to help consolidate your debts quickly, easily and affordably.

Are you struggling with multiple debts and looking for ways to manage them more efficiently? If so, debt consolidation may be an option worth exploring.

Here at Consolidation Expert, we understand that debt can feel overwhelming. Our experienced team is here to explain everything you need to know about consolidating your debts in the UK.

In this comprehensive guide, we will walk you through what debt consolidation is, the different methods available, how to determine if it’s the right choice for you and provide actionable steps for the consolidation process. By the end, you’ll have all the information you need to make informed decisions about tackling your debts.

Key Takeaways:

  • Debt consolidation allows you to combine multiple debts into one new loan, with one monthly payment.
  • Main methods include balance transfer cards, loans, remortgaging, and debt management plans. Each have pros and cons.
  • Consolidating can make repaying debts more manageable but isn’t suitable for everyone. Consider your circumstances carefully.
  • Improving your credit score can increase your chances of getting approved for the best consolidation method for you.
  • Work out your budget, research options thoroughly, and seek professional advice to find the right solution.

What Is Debt Consolidation?

Debt consolidation simply means taking out one new loan to pay off multiple existing debts. This new consolidated loan replaces your various credit cards, store cards, overdrafts, loans, and other unsecured debts.

Instead of juggling multiple payments and due dates, you’ll make one monthly payment towards your new consolidation loan. The aim is to simplify repayment, streamline finances and often get a lower interest rate.

Consolidation can make managing debt less stressful and easier to budget for. However, it also means taking on additional borrowing. It is crucial to understand the risks and responsibilities involved before proceeding.

Here are some key benefits and drawbacks of debt consolidation to weigh up:

Potential Benefits:

  • Simplifies finances with one monthly payment.
  • Can allow you to lower the debt interest rate, saving money.
  • Fixed repayment terms can provide structure.
  • May allow payment holidays if needed.

Potential Drawbacks:

  • Consolidation fees can be expensive.
  • Loan approval isn’t guaranteed.
  • Secured loans and remortgaging put your home at risk if you can’t repay.
  • Extending loan terms may increase interest paid.
  • Missed payments can damage your credit rating.

Assessing if consolidation is right takes careful consideration of your unique circumstances.

Different Debt Consolidation Methods Explained

There are various options available to consolidate debt in the UK. The most suitable method will depend on your specific financial situation. Let’s explore some of the main methods to understand how they work:

01. Balance Transfer Credit Cards

This involves transferring existing credit card balances to a new card offering a 0% introductory interest rate. You get a set period (typically 6-18 months) where you aren’t charged interest on the balances you transfer over.

This time-frame can be used to pay off the principal debt without accumulating more interest. However, there are usually fees involved in transferring balances between cards.

02. Personal Loans

Banks, peer-to-peer lenders, and online loan companies offer personal loans that can be used to consolidate debt. You receive a fixed lump sum which can repay your existing debts, with fixed monthly repayments and rates over a set term (usually 1-7 years).

03. Secured Loans

Secured loans use an asset you own – like your house or car – as collateral to secure the debt consolidation loan. This means the asset can be repossessed if you fall behind on repayments.

While riskier, secured loans often have lower interest rates. Secured loans allow you to borrow larger amounts than unsecured alternatives.

04. Remortgaging

Remortgaging involves taking out a new mortgage to pay off your current one and any outstanding unsecured debts. This combines debts into one lower monthly payment. However, remortgaging is a lengthy process and you risk losing your home if repayments are missed.

05. Debt Management Plans (DMP)

One alternative to debt consolidation is a DMP are informal arrangements between you and creditors, managed by a debt advisor. Your creditors agree to reduced interest rates and repayments, fees and charges may be waived, and collection action halted while you repay under the DMP.

Note that not all creditors will accept DMPs, they impact your credit file, and there may still be fees for setting up the plan.

Is Debt Consolidation Right for Me?

Consolidating debts can be a double-edged sword – helping streamline finances but also adding to your borrowing. To decide if it’s the right move, consider the following:

  • Will consolidation actually reduce your monthly payments and interest rate?
  • What does your credit score and history indicate? Do you qualify for balance transfers or loans with good rates?
  • Can you realistically stick to the new repayment schedule and terms? Avoid being over-optimistic.
  • Are you addressing the root causes of your debt troubles, like overspending?
  • Do you have assets like property to secure the debt against, if needed?
  • Have you sought professional debt advice about your specific situation?

If you can get approved for an option that will genuinely save money and are committed to repaying, consolidation can be beneficial. But rushed decisions could make circumstances worse and trap you in more debt. Seek tailored guidance to decide if it’s right for you.

How to Improve Your Chances of Debt Consolidation Approval

Your credit score plays a crucial role in determining debt consolidation eligibility. Many lenders will not approve consumers with very poor credit ratings.

The good news is there are practical steps you can take to improve your credit score over time. Here are some top tips:

  • Check your credit reports for any errors and get them corrected. Mistakes can unfairly drag down your score.
  • Start paying all bills - including credit cards - on time and in full. Payment history is very influential.
  • Don't make new credit applications for a while. Too many hard inquiries also impact your rating.
  • Reduce credit utilisation by paying off card and loan balances where possible. Keep balances below 30% of the limits.
  • Avoid missing payments on existing debts prior to applying for consolidation. Missed payments are red flags.
  • If possible, have some savings to show lenders you can cover emergencies without borrowing.
  • Become an active voter and ensure you’re on the electoral register. This helps prove your identity.
  • Consider getting a credit-builder card to demonstrate responsible borrowing. Make sure to clear balances monthly.

With time and dedication, it is possible to improve your credit score sufficiently to get approved for the best value consolidation deals.

Step-by-Step Guide to Consolidating Your Debts

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If you’ve decided debt consolidation is the right path for you, here is a step-by-step guide to see it through:

01. Calculate your budget

Work out your monthly income coming in vs essential outgoings like rent, utilities, food etc. This will help you understand what’s realistic to pay towards your debts each month.

02. Check your credit report

Get your latest credit report and check your rating. This gives insight into the consolidation options you may get approved for.

03. List all debts

Make a list of all your debts and key details – the lender, interest rates, total amount owed, minimum payments due. This gives you the full picture.

04. Research consolidation methods

Based on your credit score and budget, thoroughly research which consolidation options are suitable. Compare interest rates, fees and terms from various providers.

05. Apply for consolidation

Once you’ve selected the option that works for you. Have all required documents and financial details on hand, and our experienced team will let you know whether you’re eligible for a debt consolidation loan as quickly as possible.

06. Make repayments

If approved, you’ll get your new consolidated loan. Be diligent about making the monthly repayments in full and on time.

A man using a laptop with an Apply speech bubble coming out.

Get Tailored Debt Consolidation Support from Consolidation Expert

We hope this guide has helped you understand the process of consolidating your debts in the UK. The most important thing is choosing the right solution for your unique situation.

Here at Consolidation Expert, we offer tailored debt consolidation support.

To find out if consolidation is right for you, and explore your options, contact our team or apply online for a free assessment.

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Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

Further reading

Read Is it Possible to Consolidate Short-Term Same Day Loans?
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Read Can I Consolidate Holiday Loans with Other Debts?
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Read How Can I Pay Off My Debts Faster?
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