Consolidating your debts is a great way to save money on interest and charges you may be incurring from high interest loans and credit cards.
There are many different options for consolidating debts. Here is a brief overview of some of those available to you;
Debt consolidation without the need for a loan
If you owe over £15,000 of unsecured debts, can afford at least £200 towards your debts each month, are in employment and finding it a struggle to meet repayments, then an IVA might a good option for you. An IVA is a form of government legislation to help you clear your debts. It is legally binding and allows you to write off up to 75% off what you cannot afford to pay. You pay one fixed amount which you can afford for a period of 60 months, at the end of the period any debt remaining is written off and you walk away debt free.
Debt Management Plan
A Debt Management Plan is a simple and effective way to pay your unsecured debts without the need for a loan. They are designed for people who are in debt and who are struggling to make there monthly repayments. In most cases, interest and charges can be frozen to help you pay the debt off faster. They can also reduce and eliminate hassle from creditors. Only unsecured debts can be taken into a Debt Management Plan. The minimum criteria is you must owe at least £2,000 (unsecured debts only), have at least 2 creditors and can afford at least £100 towards your debts each month.
Trust Deeds are a good way to write a large percentage of your debts off if you are struggling to make your repayments. They are only available to people who live in Scotland or if you have been resident there at any point in your life for at least six months. Only unsecured debts can be included in Trust Deeds but one of the main advantages is there is no minimum amount that must be owed to qualify. You pay one payment per month for 36 months (Timescales may vary depending on circumstances), after this time any debts remaining are written off.
Debt consolidation with a loan
A Secured Loan allows a debtor to secure finance by providing some of collateral as security. Hence, the name 'Secured Loan'. The security usually provided is a property or some kind of asset. Secured Loans are generally easier to obtain than an unsecured loan ass there is less risk involved for the lender. Remember, if you take out a secured loan and fail to keep up repayments, your property or asset may be at risk.
Unsecured Loans can be a good way to consolidate debts accrued by credit cards. Interest rates on Unsecured Loans tend to be a lot lower, sometimes as low as 6.9% (depending on the current financial climate) whereas credit card APR can be as high as 29% APR, so there are massive savings on interest to be made.
If you own a property and have a lot of unsecured debt, Remortgaging may be an option for you. Remortgaging allows you to borrow money against your home by releasing equity in your property. You can then use this equity to free yourself from your unsecured debt. Before signing any agreements with your lender, be sure you can meet the repayments. Failure to do so may put your home at risk from being repossessed.
Bad Credit Loans
If you have adverse credit history and struggle to raise finance, a Bad Credit Loan may be an option for you. There is a lower criteria to pass but you will be subject to higher interest rates, sometimes as high as 182% APR. Bad Credit Loans should only be used in emergencies and are meant for short term borrowing only. Borrowing over long periods could result in financial difficulty.
For free help and advice on which is the right solution for you, call our friendly team at the UK Debt Advisor on 0800 043 2027 or use our free call back service.