Debt consolidation may offer you a way to regain control of your finances. It could allow you to lower your monthly debt payments and reduce the number of companies that you owe money to. However, it’s important to take expert advice before making any decision on whether this is the best course of action for you.
Before taking out a debt consolidation loan, it’s important to get expert advice. Also, it’s crucial to be aware that you shouldn’t pay a penny to any creditor unless you’re completely satisfied that they can prove you owe them what they are claiming from you. This is where we come in. The experts at CLB Direct will provide trusted legal advice on your options and can help you to escape debt for good.
What is debt consolidation?
If you have several existing debts (for example, credit card borrowing, overdrafts and personal loans) and you are struggling to cope with your repayments, debt consolidation may seem like an attractive option. This involves taking out additional credit in the form of a new loan that allows you to combine all your other debts into one ‘lump sum’. Doing this means you only have one repayment to deal with each month, making it easier to manage your cash flow.
There are two main types of debt consolidation loan, secured loans and unsecured loans. Secured loans, sometimes called ‘homeowner loans’, are secured against your property or another high-value asset such as a car. You might be offered one of these if you have a poor credit history or you owe a lot of money. These loans provide a safety net for lenders but you are at risk of losing your assets if you cannot keep up repayments. In contrast, unsecured loans are lent without the repayments being guaranteed against your home or any other asset.
As a general rule, it is difficult to borrow more than £25,000 as an unsecured loan, a lender will usually ask for bigger loans to be secured against your assets. Whilst a secured loan may feel like a good way out of unmanageable debt, securing any borrowing against your valuable assets (particularly your home) is a very serious commitment which could have devastating consequences if you are not able to keep up repayments.
Is it the right option for me?
There are a number of potential benefits associated with debt consolidation loans; however, there are also disadvantages to consider before making any decision.
- This may make it easier to manage your monthly expenditure
- By reducing your risk of accidentally missing a repayment, debt consolidation loans can help to protect your credit score
- You might save money by switching from high interest loans to a lower rate of interest
- These loans often include hidden fees to clear existing debts
- You might well find yourself paying a higher rate of interest
- If the agreement has a longer term than your original debts or the interest rate and fees are higher, you may end up paying more in total even if your monthly repayments are lower.
- You risk losing your assets and having your home repossessed if you cannot keep up payment of a secured loan
In theory, a debt consolidation loan could save money in the long term. Unfortunately though that is often not true in practice as many of these loans are only offered at higher rates of interest than you would already be payin. Taking out credit to cover existing borrowing is rarely affordable and comes with a big risk. It’s essential to seek expert advice and help if you are considering debt consolidation to ensure you achieve your goals with this solution.
What are the alternatives?
There are alternatives to debt consolidation to consider carefully before deciding that this is a suitable option for you. You may also need an alternative if you have a poor credit history and do not meet the criteria for these loans. One of your best options would likely be to arrange a debt management plan instead. This is an agreement between you and your lenders on how your debts will be repaid. This can be arranged with your creditors directly or with the help of a third party such as Step Change who will not charge you any fees. These plans can be especially useful to those who are finding it difficult to make repayments in the short term.
If you’re in more serious debt, you might wish to consider more drastic steps, such as a debt relief order or bankruptcy. These formal procedures prevent creditors from taking legal action against you for a period of time.
How we can help
A debt consolidation loan is a serious financial commitment which may well make your financial situation worse in both the short and long term. You should take steps to get expert, impartial advice before making a decision.
If you’re struggling with your finances and you’re considering a debt consolidation loan, or any other debt solution, it’s likely that we can help you first. We go beyond offering solutions that simply make it easier for you to manage your debts; it’s our goal to help our people escape debt for good. Our specialists will establish which, if any, of your creditors can actually prove you owe what they say you owe before you make any payments to them. Drawing on our in-depth knowledge of your rights and the consumer protection legislation which exits to help defend you, we can help you assert your right not to pay. Using this approach, we’ve saved our clients over £2.5 million.