Ways to consolidate your debt
Many companies will offer you Debt Consolidation, but what exactly is it and how does it work? Well, the first thing to be aware of is that there are lots of different ways of consolidating your debts but in each case the principle is the same.
Debt Consolidation is effectively a way of bringing all your debts into one place so you can repay them with one single payment each month. This might be particularly attractive if you are in a situation where you have a range of debts across a range of providers, such as credit card debts, unsecured loans, catalogue debts and store card debts. Each of these will be asking for different amounts each month, and each of them will probably be charging differing rates of interest. Unless you are paying off the balances in full at the end of each month then the debt on these is probably growing, but do you know how much worse it is getting each month? Do you know which of these providers is charging the highest rate of interest? Can you figure out who to pay first, and how much? Under these circumstances it’s no wonder people see debt consolidation as a good option as it gets rid of all these nagging worries and allows you to make one payment to one provider every month, and as long as you keep up your repayments you can start to see your debts shrink month on month.
So which is the best way to consolidate your debts? Well at Money Advice Group we are specialists at helping people with debt problems sort out their money, and by calling one of our advisors today they will be able to give you free advice on the best way to sort out these debts. Please bear in mind that as every person has a different debt issue, our advisors will need to talk to you about your circumstances in order to establish the best solution for you. So, of all the options available, which could be best for you?
Credit Card Balance Transfer
Credit card companies are very keen these days on encouraging people to transfer balances, as they know that they can make more money from you if you owe them more. Ideally if you want to consolidate all your unsecured lending onto a new credit card you should try and choose one that has a zero fee for balance transfers and no interest for a period once the balances are across. If you are sure that you can repay what you owe before the interest free period has elapsed then this might be a simple option for you, however there are downsides to this method.
Throughout 2009 and 2010, credit card companies have been putting up their rates of interest so that the majority of them are now over 18%, with some as high as 40%. Given that the Bank of England base rate is just 0.5% (correct October 2010) then you can see that these rates are extremely high. The danger is that people can be easily fooled into thinking that they can pay back the money they owe if it was just in one place, but you need to do this before the zero interest period expires. If you don’t then their standard rates will apply and this means that unless you are repaying the interest and at least some of the capital each month then your debts will actually be increasing month on month, not decreasing. By doing the right thing to get your finances under control you can easily find yourself in worse debt than before. If you are considering this course of action then feel free to call us first and ask our advice – it’s free and we might be able to offer a better solution.
You could take out an unsecured loan to pay off your other loans. This may sound a bit strange but in certain circumstances it can make sense to take out a loan to pay off your other loans. If you are thinking about doing this then you will need to be clear with the loan provider about what it is for, and be sure that the amount you borrow will cover all the loans and interest you owe across all your other unsecured sources. You should also make sure that the interest rate is lower than your existing providers, not just that the monthly payment is less. A lower monthly payment may seem attractive but you have to be clear about how long the loan will be over and ultimately how much money you are paying back.
At Money Advice Group we have access to a wider range of lending sources and can help people who need to consolidate loans in this way. We will happily discuss this option with you and give you clear no nonsense advice on the very best way to structure any loan, and how much it will cost, both per month and overall.
A secured loan is an option only available to homeowners, as the loan is secured against your property. You should remember that failure to keep up repayments on a loan secured against your property could result in your home being repossessed, so it is vital that you only do this if you are sure you can meet the necessary repayments. A secured loan can often be at a much lower rate of interest than an unsecured loan, as the lender has the security of knowing that their money is safe. This may allow you to borrow enough to repay all your unsecured lenders and end up paying a single payment each month for less than your combined payments today. Whilst this option sounds attractive to many people it will only be available if your circumstances meet the profile demanded by the lender. To find out if you could qualify for this option just call us on 08002 800 492 and we can help assess your circumstances.
Remortgage with Equity release
If you have owned your property for a number of years and it has risen in value then you may find that the difference between your mortgage value, say £150,000 and the current market value, for example £200,000 means that you have ‘equity’ in your property. In this example the ‘equity’ is £50,000 and you may be able to withdraw some of this depending on your mortgage providers’ rules. Many providers these days insist on a Loan to Value ratio of 75%, so in this example they would only loan £150,000 against a value of £200,000, so the ‘equity’ here would not be available to be withdrawn. As this area of the market has a lot of variables and providers have different criteria they measure against, you would need to take professional advice on this. At Money Advice Group we have a secured lending business, Oak Loans and Mortgages Ltd. which is an entirely owned subsidiary company of the Money Advice Group and offers a wide range of financial solutions. Oak Loans and Mortgages Ltd. is authorized and regulated by the Financial Services Authority under registration number 468800. Credit services other than regulated mortgages are not regulated by FSA. Oak Loans and Mortgages will be more than happy to help assess your circumstances. Just call us on 08002 800 492 and let us do the rest.
Debt Management Plan
Sometimes all you need is a bit of breathing space and in these circumstances a Debt Management plan could be the right thing for you. Essentially a Debt Management plan consolidates all your debts into one place and allows you to just pay back a single affordable monthly payment. All our Debt Management Plans (DMP) are handled by Kensington Financial Management Consultants Ltd, our sister company, and they can negotiate with all your unsecured creditors to accept a single lower payment from you each month. Essentially Kensington will work out how much you can realistically afford to pay back each month and approach each of your creditors and offer them a proportion of that payment. They can choose to accept or reject this however if they do accept, and many firms do, then this could put a stop to the harassment of calls and letters from each of the firms you owe money to.
Debt Management Plans automatically carry a fee but that comes out of the single payment you make to Kensington each month before it is distributed to creditors. For full details on this and worked examples of the fee structure please read our Debt Management page and also see our Debt Management Fees and Terms and Conditions at the bottom of the page.
Individual Voluntary Arrangement (IVA)
An IVA is a legally binding agreement between you and your creditors and commits you to a repayment plan, usually over five years, during which you undertake to pay back a fixed amount of your debts by paying a single monthly payment. At the end of this period the remaining debt may be written off. If you own a property however you will probably be required to undertake some form of Remortgage in year four of the plan and release any equity you have in the property into the plan to pay your creditors. Specific rules surround IVAs and to better understand them we would recommend that you read our page on IVAs and also read the IVA Fees and Terms & Conditions at the bottom of this page.
As you can see, there are a wide range of options open to you to consolidate your debts, and this is something you should take professional advice on before you decide which course is best for you. Our trained advisors speak to hundreds of people in debt each week and can help you understand the detail of each of the options and advise you on which course will be best for you. As with all our services, the initial consultation and recommendation is completely free however should you decide to use our services, along with all other non charity providers, fees will be payable. These fees are clearly shown throughout the site however you will be given a clear understanding of our fee structure and how it is paid when you speak to one of our advisors.
So why not call us today? Your call is free from a landline on 08002 800 492 and our advice is free. And who knows, by making the first step today you too could be debt free.