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Debt Consolidation
Debt Consolidation can make things simpler, as it allows you to put your debts in one place and deal with multiple creditors at once.
We provide IVAs by our licensed insolvency practitioner regulated by the Insolvency Practitioners Association. We provide information about all debt solutions but we do not provide advice as we are not regulated by the Financial Conduct Authority.
What's Debt Consolidation?
Consolidating your debts essentially means finding a way to combine them into one solution. It’s a particularly good idea for those in debt who owe money to multiple creditors, as dealing with so many at once can become hard to keep track of and things can get confusing.
If you are in debt and owing money to multiple lenders, opting for a solution that helps you deal with them in one go may be a good idea. Consolidating your debts can be done in various ways, and it’s worth looking into if you are struggling to get on top of things.
Thinking of consolidating your debts?
Our team will be able to discuss your options with you.
How Can I Consolidate My Debts?
Debt consolidation can be done in a variety of ways to make things easier for you, however, you should be aware that not every type of debt is the same, and some may not be eligible to be consolidated along with others in certain schemes.
It’s important to consider which option would suit you and your personal situation before making any decisions. Below are some of the main solutions which allow a form of debt consolidation:
IVA – This allows you to enter certain debts into an agreement, where you make one monthly payment which goes towards them all and the rest is written off.
Bankruptcy – If you have little to no ability to pay off your debts, you can apply for Bankruptcy and these can be written off after one year. Your assets may be sold to contribute towards repayments to your creditors.
Debt Relief Order – Here, you can freeze your debts for a year and have eligible debts written off after this time.
Debt Management Plan – You can combine eligible debts into one monthly payment handled by a 3rd Party Company. Your one payment contributes towards your debts, as well as the fees of the company handling it.
Consolidation Loans
Another method of consolidating your debts is done by a ‘Consolidation Loan’ – this is where you open a new account and use the credit from this account to pay off other credit card and loan debts. In doing so, you may be able to close down certain accounts or at least reduce the amount owed to them. This doesn’t reduce your overall debt level, as you will still owe money to the new account to cover the credit you have used – but it does mean that you may be able to reduce the number of creditors.
By paying off multiple old accounts by borrowing credit, you essentially transfer the debts to your new account – so instead of dealing with numerous creditors, you consolidate these into one.
Things to be mindful of:
It’s important to remember that with a Consolidation Loan, you don’t reduce the amount of money you actually owe, you just move it all into one place.
It’s crucial that you keep up payments towards your new account so that you don’t land in further financial trouble. It’s always worth looking into this thoroughly beforehand and consider what your monthly repayments would be exactly, to understand whether or not this is an affordable option for you.
By opening up a new account, the new lender will have to carry out a ‘hard’ credit search, which will have a negative impact on your credit score. However, keeping up regular repayments is the best way to improve this again, and in doing so your score will increase over time as your overall debt level decreases.
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The first step is the hardest but you’re in the right place – talking with one of our friendly assessors can help get the ball rolling.
Step 2
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Talk to us about your situation, and we’ll let you know if an IVA may be a potential solution for you.
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No Obligation Service
We can carry out a suitability assessment, and if you qualify for an IVA we can help put together an application with you. There’ll be no obligation and we’ll be on hand to answer any questions you may have along the way.
Free Credit Search
If you’re considering debt consolidation, it’s worth writing down exactly what debts you owe and who your creditors are.
If you’re unsure about this information, don’t worry – here at Money Advice, we can bring up the information regarding your debts for you. We can run what’s called a ‘soft’ credit search for free which will show us exactly what debts are outstanding.
The importance of a soft credit search is that this does not leave an imprint on your file – only you will be able to see that this has been carried out. This is a quick process and with this information we will have an even better idea of what solutions you qualify for.
We use the main credit companies in the UK for these checks – these companies are:
- Experian (experian.co.uk)
- TransUnion (transunion.co.uk)
- Equifax (equifax.co.uk)
Start by finding out if you qualify by answering the below questions
Debt Consolidation FAQs
There are two options when it comes to debt consolidation:
The first involves finding a solution that enables you to combine your debts and deal with them together, generally making one payment towards multiple creditors at a time.
The second is a Debt Consolidation Loan, which means you borrow credit from a lender and use that to cover/close down multiple other debts, leaving you with just the new lender to deal with.
The debts that can be involved in consolidation will depend on the type of solution you go for. Not all debts may be covered, so make sure you know exactly what lenders you will need to keep up repayments to before choosing a solution.
If you take out a consolidation loan, it would be up to you to decide which debts you would like to deal with and pay off first.
Benefits of debt consolidation include being able to streamline your repayments to make them more manageable. Certain solutions also mean that your creditors are not allowed to contact you while you go through the process.
There are certain points to bear in mind when considering consolidation.
With a consolidation loan, it’s important to remember that you aren’t getting rid of your debts entirely – you still owe the same amount of money, just to one new lender.
There are also usually high fees and interest with these loans.
A consolidation loan may be a suitable option in certain circumstances, but it’s not always the answer. If you have struggled to repay your existing debts, you are likely to struggle to pay back the consolidation loan you have taken out, plus the interest that this may generate.
Everyone’s situation is different, so whether or not you opt to consolidate your debts is entirely up to you. However, it does help people who are owing debts to multiple creditors and are struggling to keep up with repayments.
If you’re in debt, it’s most likely that your credit score is already not looking good. However, the sooner you are on your way with a solution the sooner you can start improving your credit score.
If you take out a consolidation loan, your score will likely worsen as you will essentially be doubling the amount you owe. Even though this money will be intended to pay off debts, it’s still seen as ‘borrowing’ by your lenders, showing that you continue to struggle with repayments.
At Money Advice, we can help guide you through solutions that will enable you to consolidate your debts to make them more manageable and affordable to you.
We are not a lender, so we do not offer consolidation loans.
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*To find out more about managing your money and getting free advice, visit Money Helper, an independent service set up to help people manage their money.
