All about Debt Consolidation in UK

What is Debt Consolidation?
The process of availing a single loan to pay off many other debts is called Debt Consolidation. It normally is used to consolidate many unsecured or high interest loans into one secured or lower interest rate loan.
The low interest loan that is taken in the process of debt consolidation is normally a secured loan wherein an asset is used as collateral against the loan. This leads to reduction of risk for the lender in cases where the debtor is unable to repay the loan. This can be used as an alternative to bankruptcy where the debtor can look for debt consolidation companies who can buy the loan in a discounted manner. This approach of consolidation can also be used against multiple credit card payments where the interest rates are normally higher. Usage of a single secured loan at a lesser rate of interest is advantageous as compared to paying huge interests towards your credit card bills.

Advantages of Debt Consolidation
The debt consolidation process provides many advantages if you are able to adhere to a regular monthly commitment.
The first and foremost advantage is the reduced rate of interest in which you would be availing the single loan. In most of the cases, the debt consolidation loan would be a secured one and hence tend to provide less interest rate than all your other unsecured loans.
The less rate of interest in turn leads to less or reduced pay-out on a monthly basis.
The main purpose of the debt consolidation is to combine many small, unsecured loans into a single big secured loan and this hence prevents payment to many creditors on a monthly basis resolving the hassles associated with it.
The process of combining many creditors into one means that there is just a single monthly commitment you need to adhere to and this helps in managing your finances on a better level.
The loan that is taken for your debt consolidation is normally provided with a longer repayment period which means less monthly repayment compared to your huge number of unsecured debts.
The debt consolidation process can also help in increasing your credit level once you start adhering to a regular and prompt payment mode.

Disadvantages of Debt Consolidation
Though as easy it may seem, there are few points of concern in a debt consolidation process.
As debt consolidation normally takes an asset as collateral, it possesses the risk of losing the asset on failure to pay the debt. Hence it is always advisable to make sure you can pay on time before opting in for a debt consolidation loan.
The process of consolidation can also affect the debtor’s ability to write-off the debts at the time of bankruptcy. Often advised for credit card debt.
Though the lower monthly payment amount might be an advantage for individuals with low income but it makes you committed on a longer term with the increased repayment period which subsequently increases the repayment amount.
It is sometimes possible that you might not be able to combine the entire unsecured loans with a single debt consolidation loan leading to you paying both your secured and other unsecured loans simultaneously on a monthly basis.
Lack of poor credit history can at times make it difficult for you to obtain a debt consolidation loan.
The credit cards that you have consolidated will pose a higher risk if you continue spending on them.

Alternatives to Debt Consolidation
Before moving in for debt consolidation, it is wise that you ponder the other alternatives available. Bankruptcy is one common alternative to Debt consolidation where you declare your inability to pay your debts, but it can have serious implications with regards to future borrowing.
IVA or Individual Voluntary Arrangement is one another option where you can enter into a legal agreement with the creditor to negotiate on the amount and terms of the unaffordable debt. Debt Management or Debt Settlement is very similar to IVA with the exception that it is not a legal binding and is bound to change anytime. In both these methods, you pay the accepted amount to your creditor in pre-defined terms every month.
You can also choose to re-mortgage your house to release equity for paying your unsecured debts.

The Process
Once you have decided on opting for debt consolidation, you can find online data about companies that offer services for secured loan. You can get in touch with the agents from the company to know more about these loans. It is advisable that you procure all details about these loans and the way it can affect your monthly payments before you get on with one.
The application for a debt consolidation loan is similar to any other loan application, though these processes might look lengthy and take comparatively longer time for processing.

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