Debt Consolidation

Home >Personal-Finance-UK > Debt-Consolidation >

Background

What is debt consolidation

Grouping all your loans and credit card debt together, and taking one single loan out to repay the balance is known as debt consolidation. The idea is that that you save on monthly repayment amount by getting a lower rate of interest on your loan.

If your finances are very bad it may be a good idea to receive debt counseling who may help you formulate a debt solution. There are also non profit debt consolidators. However, do your research on any company you use as all may not be as it seems.

How to choose a good Debt Consolidation Company to become debt free

Through desperation, it's all too easy for a consumer with a high level of debt to take the first offer of debt consolidation that is offered to them.

Before you do, you should compare the lenders and the products and deals they offer because there are potential pitfalls and hidden costs.

		Pitfalls of the Debt Consolidation Companies
		The debt companies, may reduce your monthly payment amount, but extend the repayment period of the loan. This means that you will be paying that reduced amount for a far longer period of time, possible at a higher interest rate. Therefore, you will end up paying more in total than your existing payments and it will take you longer to become debt free.
		Check the APR interest rate. This will typically be in the range of 9% to 20%. 9% is good and over 15% is bad, over 20% is awful. However, if you cannot secure your loans on an asset e.g. a property, you will typically be paying a higher level of interest which will increase the payments on the personal debt.
		TV adverts makes debt consolidation sound great. However, the TV advertising costs money and this cost is passed onto you through the higher interest you pay. So check out the high street lenders first, such as Abbey who offer a loan typical rate 5.7% APR for Internet loans of £5,000 or more (for deals under £5000 Abbey doesn't look too good at the moment Sept 2005). However, this is only available to some customers. So compare all your options. Northern Rock and Cahoot are also offerring some good rates of APR for loans.
		Borrowing against your house can go wrong. You could lose your home if you default on the loan.
		Some debt management companies charge 15% monthly management fees - tell them to get stuffed
		Be careful about applying for too many loans. Your credit rating could be affected.
		Often, the sales tactics is to heavily promote the lower monthly payent with no mention of payment APR and length of repayments. Statements like 'save 70% and get £16,000' etc are common. Watch out. You could end up in a worse position in two years.

	We would really appreciate if you would state your views on debt consolidation on our Debt consolidation and management message board. Here's some recent posts!

Reducing debt is big business

Debt companies are making lots of money, especially from the effects of the 'buy now, pay later culture'. They are happy to spend a big amount gettiong you as a customer because they will make money from the interest you pay.

Debt consolidation companies

Firstly, try to get an APR rate of under 10% from a high street bank, such as

Abbey
HSBC
Royal Bank of Scotland
Halifax Bank of Scotland
Northern Rock
Cahoot

If your have no luck, then approach.... Ensure you get a good APR. I am not recommending any of them.

Ocean Finance - all loans are secured on your home, rates vary from 8.9% to 19%
Cattle's - Lend to borrowers who cannot usually get a loan from a high street bank.
Banes and Ernst
Gregory Pennington
Churchwood Financial
Freeman Jones
Guardian Credit
Sectrum Finance

Please use the sub sections links on the left or the content links to find out more about Debt Consolidation.

Financial Risk Home