The process of debt consolidation involves using a single new loan to repay several existing debts.
For many UK residents, this is a smart way to regain control of finances.
However, not all consolidation loans are equally attractive so some comparison-shopping is required to find the best deal.
There are also some steps to take before settling on a consolidation loan as a debt management solution.
Read on to learn more and feel free to contact us if you have any questions. We are debt management experts so even your most difficult questions will not go unanswered.
Debt Consolidation Basics
Debt consolidation is basically just a loan with a principal and an interest component. After being approved for a loan large enough to cover outstanding debts, you use the loan proceeds to repay your existing debts. You then need to repay the consolidation loan, which is typically done via monthly instalments.
After deciding on a consolidation loan, shop around to find a reputable lender with the most attractive terms. Look for a low-interest rate and affordable monthly payments. A short term is also recommended where possible because it allows you to repay debts more quickly. However, the payment should not be unaffordable because this may worsen your financial situation.
When Is The Right Time To Consider Debt Consolidation?
The proper time to use a debt consolidation loan is before the debt has got out of control. If income is not sufficient to cover outstanding debts, it is time to get help. At Jubilee, we know that it is never too early to be concerned about finances. If you are finding it difficult to pay your bills or make payments on the credit card or loan balances, this is a sign of financial trouble.
We will review your financial situation and determine whether a debt consolidation loan can resolve your issues. Waiting too long to take control of debt may mean that only more severe debt management solutions are available. Why procrastinate when a consolidation loan may be all you need to get back on track financially?
Things To Consider Before Using A Consolidation Loan
Before you move forward with a consolidation loan, try to arrange new payments with existing creditors. You may be able to negotiate lower monthly payments that make the debt more affordable to repay. Also, review existing credit options to ensure that you are making the best use of them. You may have overdrafts, store or credit cards, bank or building society personal loans, or a mortgage extension at your disposal and the interest rate for one of these may be lower than the rate for a consolidation loan.
Friends or family members may be willing to lend the money needed to repay debts. It does not hurt to ask them because the worst they can say is no. You should also contact us because we may recommend alternatives to a consolidation loan. Being in debt is complicated enough without having to find your own way out of it. Let us help you identify the most suitable solution for your situation. It will often only take one consultation for us to determine what that is.
How To Select The Right Product…
Any UK firm that lends money to consumers must be licensed by the Financial Conduct Authority (FCA). Take time to verify the licensing status of all prospective lenders with the FCA. Under UK law, lenders may not provide credit to a UK resident younger than age 18. Each lender should provide a Pre-Contract Credit Information Form, a standard document that includes loan information, designed for easy comparison.
When shopping for a consolidation loan, ask questions about any terms or conditions that you do not understand. Use the Credit Information Form to identify the repayment timeframe and total repayment amount including interest and other charges.
Find out whether the stated interest rate is fixed or subject to change. Ask prospective lenders to break their proposed loans down into monthly payment figures so you can more accurately determine the impact on your monthly budget.
Ask lenders about the consequences of missed payments. Many lenders charge a late payment penalty, so find out the amount. Ask what will happen if you take a secured loan and are unable to maintain the repayments. The consequences can be as severe as losing ownership of the home, so it is best to be aware of these before agreeing to a loan. In addition, ask whether early repayment of the loan balance is permitted and if so, if this will incur any costs or penalties.
If both unsecured and secured loans are available, some people will select the unsecured loan with the most favourable terms. Consolidating unsecured debt into secured debt through a secured consolidation loan may be a risky move, though the added security for the lender might reduce the costs to you.
Though a secured loan usually features a lower rate of interest, the act of guaranteeing the loan with your home greatly outweighs this benefit in the view of some people. If you are unable to repay the loan as agreed, the lender may repossess the property, leaving you homeless.
Consider Jubilee Your Team Of Experts
Consolidation loans help you repay unsecured debt including credit and store card balances, bank overdrafts, and catalogue debts. If you think a debt consolidation loan is a right solution, contact us because we may be able to help you find the best deal.
We will provide assistance during the loan comparison process and will answer relevant questions. Before long, you could be repaying your outstanding debt with an inexpensive consolidation loan if you qualify to obtain one. All that will be left to do is repay this loan over time, possibly improving your credit score in the process.
In addition to advice and assistance regarding consultation loans, we can help you establish a budget. By living within your means, it will be easier to remain free of unsecured debt for life. Extra money can be allocated to mortgage and car payments, substantially decreasing these balances over the years. There is nothing like the feeling of living without the burden of debt.
Positives And Negatives You Should Consider
When debt consolidation is used carefully, it allows you to regain financial control and offers these benefits:
- the interest rate for a long-term consolidation loan may be lower than for a short-term alternative
- monthly debt payments are sometimes reduced
- you know the date you could become debt-free
- a single monthly payment for all debts which have been consolidated
- one lender
- can prevent you from making late or missed payments that can negatively affect your credit rating
A debt consolidation loan is not without its negative features, which include:
- possibly paying more overall
- paying over a longer period
- extra charges to establish and repay the loan
- with a poor credit rating, only a high-interest or secured loan may be available
- placing the home at risk of repossession if the loan is secured against the home and you are unable to make repayments
- if the loan does not cover all existing debts, repaying the loan plus the remaining debts may be a financial struggle
- if additional financial difficulties arise, it may be difficult to revise the repayment arrangement with the lender
Using This Type Of Loan Effectively
Once you decide on a particular loan, do not succumb to lender pressure to borrow more money than is needed to repay existing debts. The lender may offer insurance with the financing so determine whether this is really necessary before agreeing to it. If it seems like a smart choice, get a clear understanding of the policy terms and be sure that you will be able to submit a claim if this becomes necessary.
After the loan goes into effect, keep a close eye on spending so you have enough money to repay the loan. Be careful not to begin accruing more debt because it could become difficult to repay the loan and new debt at the same time. Our experts will help you develop a budget at the beginning of the process. Stick to this until the loan is repaid and then revise the budget to contribute extra income to savings and investments. Not only will you be living free from debt, but you will also be building a nest egg for retirement.
Debt Consolidation Loan In A Nutshell:
- repays all or a portion of existing debts using a single loan
- may lower total interest payment
- can improve credit rating by reducing the likelihood of late or missed payments
- one monthly payment and one lender
- secured and unsecured versions available
- credit history and score affect loan choices
- monthly payment might be lower than existing debt payments
- might take longer to become debt-free
- you may or may not pay more overall
Personal debt is a serious issue for UK consumers and failing to address it often makes the problem worse. Debt consolidation is a convenient way for some people to quickly repay existing debt. With this out of the way, you can focus on the single monthly payment for this loan.
If you take steps to keep spending under control, you may never need our help again. But, if you do, we will be here!