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Debt Consolidation

What is Debt Consolidation?

If you have a lot of independant debts, say credit card debt, loans, overdrafts and the likes, then
debt consolidation is a means of taking all these debts and gathering them into one monthly payment. The purpose of debt consolidation is to help you better manage your debt problems.

The way debt consolidation works is by collating all of your existing debts and paying them off with one large loan. Then, the only payment you are left with is the repayment of that particular loan. The repayments are normally lower and over a further extended period of time. Therefore making your payments more manageable.

Debt Consolidation Example:

Example Debts

Unsecured loan of £5,000
Overdraft of £1,500
Credit Card Bill of £3,000
Store Card of £500

You borrow a debt consolidation loan of £10,000 to pay off all these debts. The payback interest is lower, the repayments are lower and it is also possible to extend the repayment period to reduce the payments even further.

Debt Consolidation Advantages

  • All current repayments on credit cards and loans are converted into 1 monthly payment that is generally easier to manage and keep track of.
  • Interest rates can be usually lower, so you may have a more affordable payment.
  • Less pressure and harassment in dealing with multiple creditors.
  • In the long run you may save money and you will have a date when the loan will be paid off if you keep to your repayments.
  • Could help your credit rating as you will be less likely to default.

Debt Consolidation Disadvantages

  • Don't be fooled into thinking you have cleared your debts. You have just shifted the debt to a different payment plan.
  • Be wary of interest rates. Try to get a fixed rate if you want a payment that doesn't change.
  • Fees may be payable to arrange the new loan.
  • If you have a poor credit rating you may have a higher rate of interest to pay which can mean it is less affordable. Another debt solution may be better for you.
  • If you get into difficulties making the new payments it can be harder to deal with only one creditor if you are then looking at a debt solution for example.

Is Debt Consolidation right for me?

Debt consolidation can be appropriate, depending on the amount of creditors and different outgoing bills you have. If you are

  • Fed up with paying out to lots of different creditors and having difficulty keeping on top of the payments.
  • Confused with the varied amounts and levels of interest on all your debts and you would like one overall rate.
  • Wanting to reduce your monthly bill budget.
  • Wanting to find an easier way to paying off all your debts and becoming debt free.

nb.* The suitability of consolidation also depends on the level of your debts. There may be a more suitable debt solution to help you deal with your debts.

Debt Consolidation Frequently asked questions

How much can I reduce my monthly payments by?

This depends on exactly how much money you are paying and how long you want to repay the loan borrowed. Reductions in monthly payments can be highly reduced.

How much can I borrow?

There are a variety of factors which dictate how much you can borrow. Whilst your income and, for secured loans, the equity available in your property are key, the main one is that you can afford to make the monthly repayments.

Over what length of time can I spread my repayments?

This is entirely up to you and will depend on how much you can afford each month. Most loans are usually available over 3 to 25 years, though some mortgages can be spread over a longer period of time, depending on your circumstances.

Can I use the loan for more than debt consolidation?

Certainly. Consolidating your existing credit allows you to free up money for other things. You can borrow extra for that new car, boat or caravan, to pay for your dream holiday or you can have the new windows or conservatory put in. The choice is yours. Just remember, you are paying off debts and do not over-borrow.

What if I have an accident, become ill or get made redundant?

Some companies will arrange accident, sickness and unemployment cover if you want the added peace of mind this brings. Life assurance is also advisable. We would strongly advise that you consider very carefully before taking cover as it can be very costly to do so as some companies charge too much for this.

Can I move house if I want?

Absolutely. If your consolidation loan is secured against your house then you can use the proceeds of the sale to pay the outstanding balance of the loan or, where you are moving to another property, you may be able to transfer it to your new home. Contact us and we can provide you with some options that may be suitable for you.

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IVA Example

Example of an IVA

A couple were jointly paying creditors over £700 per month. We were able to have this payment reduced to £300 per month, with all interest and charges frozen. After 8 months of paying this reduced sum, they proposed to remortgage their home. This was successful and they released £19,000. Their creditors accepted this as a full and final settlement of their debts.

IVA Examples

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