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Debt Consolidation

People use the phrase "debt consolidation" as if it is some sort of magic pill. In fact you need to be very careful when looking to consolidate your debt especially if you are combining unsecured debt (e.g. credit cards, overdrafts, store cards, personal loans) with differing repayment terms.

You also need to be aware of the risks if you are thinking of using a secured loan to do it.

View some debt consolidation loan options:

Why Consolidate your Debt?

  • Bring together your various debts into a single loan
  • Make just one affordable monthly loan repayment
  • Try to reduce your total interest cost
  • Should you secure your debt?
  • Should you extend your repayment period?

What is meant by "Consolidation"?

The dictionary definition of "consolidation" is:

"to combine (a number of things) into a single more effective or coherent whole"

In the case of loans this would mean:

  • pulling together a number of loans into one larger loan (i.e. "single")
  • by doing so reduce the overall cost of servicing and paying off the debt (i.e. "effective")
  • it must reduce the overall stress on the borrower and must make both financial and human sense ("coherent")

debt consolidation loans with bad credit

Debt Consolidation - part of a solution

You may think that if you've had credit problems in the past that you'll never be able to get back in control of your finances. If you are also saddled with various debts as well you may feel very vulnerable. We like to think that a loan to consolidate your debt is part of an overall plan to get control of your finances and family budget. It will not solve issues on its own, but if done properly it could help you so long as you take other steps as well.

There is little point going through the process of debt consolidation unless you stop racking up new debt. So, you also need to cut your expenditure. Here are some ideas of what you could do:

  • Set a proper budget for you and your family - to do this properly take a little time to examine where your monthly income goes. Make sure this budget is less than your income.
  • Ensure you know precisely what your debts are - you may need to prioritise them.
  • Can you pay off any of your debt by selling unwanted goods (on eBay for instance)? It's amazing what "stuff" people have collected and much of it may still have some value

Once you've got to a position where your debt is no longer growing because of over zealous spending and you've managed to pay off some debt (?) then look to reduce the cost of your existing debt.

Debt Consolidation if you have Bad Credit

In principle you can consolidate your debt regardless of your credit position. Whether you should consolidate or not is an important question - one that you may wish to discuss with a qualified financial advisor.

While your aim will be to reduce your monthly outgoings to help your monthly budget there are two key issues to keep in mind when looking at the options:

  • if reducing your monthly outgoings merely extends the overall lifetime of the loan you could end up repaying more overall than you might otherwise. Do you really want to do this?
  • if you are considering consolidating various unsecured debts with a secure debt (e.g. homeowner loan) you could be increasing your overall risk - you could be putting your asset at risk if you were to fail to keep up the repayments on the new loan. Do you really want to do this?

There are unsecured loans suitable for bad credit situations (e.g. some personal loans, and guarantor loans) as well as secured loans. So make sure you understand what you are embarking on and get proper advice if you need it. To help you narrow down your options use our QuickStart tool.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT. IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY

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