Quick Guide to: Debt Consolidation 

The One Advice quick guide to Debt Consolidation

What is Debt Consolidation?

Debt Consolidation is a process where you combine many different creditor payments into one. This can often help you to manage your debt problems and take better control over your finances.

You can consolidate your debt in a number of ways, either through a secured loan or an unsecured debt management plan.

A secured debt consolidation loan can be used to pay off your current unsecured debt, including credit cards, store cards, overdraft and loans. As the debt consolidation loan will be secured against your home, it may offer you a lower rate of interest.

Alternatively you could choose to consolidate your debt through unsecured methods in the form of a debt management plan. One Advice will negotiate a lower monthly payment to your debts, so you make the reduced payment to us and we will evenly distribute this between your unsecured creditors.

Debt Consolidation Advantages

• One reduced payment, no matter how many unsecured creditors.
• Lower interest rate with a secured loan.
• Only one creditor, meaning that you can keep a tighter control over your finances.

Debt Consolidation Disadvantages

• A secured debt consolidation loan will be secured against your home, so it is important that you keep up on your repayments.
• Chance that you will get into further debt is you continue to spend on the lines of credit which you have consolidated.
• Longer repayment terms.

Is Debt Consolidation right for me?

A debt consolidation loan is not suitable for everyone. It is important that you can commit to paying your new loan agreement as it will be secured against your home, meaning that the consequences are much more severe. But, if you can afford to make your new loan payment then it is a great way to take greater control over your debts, as you don’t have to worry about multiple creditors, payment dates and interest rates.

If you are thinking about unsecured debt consolidation, then there is less of a personal risk. A debt management plan is an informal agreement between the debtor and their creditors, offering greater flexibility and additional debt management advantages.

A debt management plan is best suited to those with lower levels of unsecured debt. If your debt is over £15,000 then you should consider whether an IVA is a better debt solution for you. An IVA will consolidate your debts into one creditor payment, but you have the added advantage that you will be free of unsecured debt in a typical period of 60 months.

Debt Consolidation Advice 

As you can see, debt consolidation is not right for every financial circumstance. It is important that you get expert advice about your debt consolidation options. Call One Advice free on 0800 048 1752.