Debt Consolidation
What is debt consolidation?
It is where you raise 100% of the debt by using a loan or mortgage.
So if you had £50,000 worth of debt you would need to raise £50,000 worth of cash. This is a common approach used by financial advisors.
However, the FSA advise that debt advice should be given when looking to raise cash to clear a debt see MCOB (Mortgage:Conduct of Business) 4.7.6 rules (www.fsa.gov)
Debt consolidation is a solution used by many to reduce monthly outgoings, it can be possible through placing all debt on one credit card, taking out an un-secured loan, taking out a secured loan or attaching the unsecured debt to a re-mortgage.
By placing all debt on a credit card it is important to find a card with a low(er) "APR", however you must ensure that you know the date when the APR increases to avoid un-necessary interest charges.
Should a decision be made to take out a secured loan or re-mortgage then it must be understood that this puts greater emphasis on meeting your monthly payments.
Failure to meet the required monthly payments you could put your home at risk.
By placing an unsecured debt on an secured loan or on a mortgage you may end up paying more due to of the length of the term, this must be taken into account when considering your alternatives.
Advantages
- Lowers monthly payments
- Can reduce outgoings to just one payment a month
- Stops creditors chasing you
- Can help to avoid missed payments
Disadvantages
- Lose the ability to negotiate with creditors
- Possibly lengthen the term of payments
- May increase the overhaul cost of the debts
- Uses up equity in your property
- Can put your property at risk if you cannot afford the payments
