Debt Consolidation

Debt Consolidation allows you to consolidate your outstanding debts into one loan.

Many of your credit card debts will be has high as 18.5% APR on cards and 25% APR on store cards. If you can borrow money to repay them all at a lower rate then you will have eliminated several monthly payments and consolidated it into one.

Debt consolidationFor example, if you remortgage your house you may only be paying 5% APR showing a considerable saving but the borrowing will be with you for the life of the mortgage. However, this fixed monthly payment does offer a lower interest rate and can take away the pressure that multiple high interest debts can bring.

Debt Consolidation should only be considered when an experienced counsellor has examined your circumstances and is also experienced in the finance market.

An alternative way of consolidating, if you do not want to remortgage, is to take a secured loan. This is the same as a second mortgage and can cost anything up to 14.5% but will probably show a saving over unsecured debts.

A consideration before taking this course of action will always be your credit rating since, if it is not good, it will deny you low cost products.

Debt Consolidation Loans can be a great way to help you deal with your personal debt, but they are certainly not suitable for everyone. You will need sound and impartial advice before you commit to this course of action. For this you will need a Debt Free Whizz Counsellor to be sure that this is the right solution for you by presenting you with alternative debt management strategies as well as alternative financial products for debt consolidation.

The Advantages
 The Disadvantages
  • Debts might be reduced by up to 60%
  • Negotiations with creditors handled by Debt Wizard
  • Potential loans negotiated by Debt Wizard
  • One affordable monthly payment
  • Is not available to everyone
  • The new debt will be for a much longer period
  • A house valuation may be required adding cost
  • A clear credit record may be required

Case Study

A client had a house valued at £280,000 with a mortgage of £150,000 giving £130,000 equity in his home. He and his wife had unsecured debts of £20,400, costing £414 per month. Their mortgage costs £989 per month.

By increasing their mortgage to £171,000 their mortgage cost £1128 per month an increase of  £139 and saving £275 per month on debt funding or roughly 50%.

The disadvantage to the couple is that the loan is secured on the house and if they fail to pay they could lose the house. Their lender my have also required a fresh valuation of the property before extending the mortgage and this would need to be taken into consideration as would any legal costs that are involved.