Debt Consolidation: Guide
Debt consolidation: What is it?
If you owe multiple creditors money, you can make arrangements to pay off your debts. Your options depend on the amount of money and assets you own.
Debt consolidation involves merging multiple debts into a single, easy to manage loan, allowing you to consolidate existing liability and consumer debts – these are generally unsecured. This provides the opportunity to make payments to one lender rather than multiple, with usually favourable payoff terms, such as lower monthly payments and lower interest on the loan.
Debt consolidation loans are government backed schemes that come in a variety of forms, dependent on the amount of money owed and the types of debt.
Types of debt consolidation loans:
Debts of £5000 and up
- IVA (Individual Voluntary Arrangement – Debts over £5000
- Debt Management Plan – Debts under £5000
- Administration Order – Debts under £5000
An ‘IVA’ is a voluntary arrangement between you and your creditors, to pay off all, or part of your debts. It is a legally binding agreement in which you agree to make regular payments to an insolvency practitioner, who will divide your payments between your creditors.
Under this initiative, your creditors cannot add interest or charges to your outstanding debts. This means that if you maintain your monthly payments and comply with the terms of your IVA plan, at the end of it, all your remaining debts are written off.
How does an IVA work?
1. Work out how much you owe.
2. Work out how much you can afford to pay each month to your creditors.
3. That amount is agreed upon by an IP (Insolvency practitioner), which is then proposed to your creditors.
4. You pay that amount for up to 60 months (5 years).
5. Afterwards, any debt you still owe will be legally written off.
Note: Have have debts of over £5000, you may be eligible for an IVA. Want to see if you are eligible for an IVA? Apply for an IVA here.
Debt Management Plan
A ‘Debt Management Plan’ is an arrangement in which you pay back all your debts to your creditors when you can only afford to pay back a small amount each month or, you have debt problems but will be able to pay off your debts in a few months.
If you have debts of under £5000, you may be eligible for a Debt Management Plan. Want to see if you are eligible for a Debt Management Plan? Apply for one here.
If your debt is through the county court or you have a High Court judgement against you and that debt is less than £5000 then you apply for an Administration Order.
You make 1 payment a month to your local court. The court will divide this money between your creditors.
Creditors listed in the administration order can’t take any further action against you without the court’s permission.
What debts can be used to apply for debt consolidation support?
If you have the following debts with at least two creditors, you may be eligible to consolidate your debt:
- Credit cards
- Personal loans
- Store cards
- Payday Loans
- Debt collectors
- Old car finance
- Previous years council tax (subject to area)
- Old utility bills
- Old phone bills
- HMRC Debt
IVAs, Debt Management Plans & Administration Orders are all regulated by the FCA (Financial Conduct Authority) and backed by the UK Government.
What are the benefits of debt consolidation loans?
For most individuals living in the UK paying off debts is not easy. That’s because the cost of living keeps on rising, which makes it harder to pay off debts and still be able to cover daily expenses. In fact, it is not hard to find yourself owing money to several different lenders.
Benefits to consolidating your existing debts.
✓Completely write off up to 85% of your debts
✓Use a government-backed scheme
✓Consolidate all your debts into monthly repayment.
✓Instantly stop interest and charges from accumulating.
✓No upfront fees – saving you £100’s.
✓Stop all creditors, collection calls and bailiffs harassment.
But before you dive into debt consolidation, there are a couple of things that you need to know about for you to make an informed decision. Below are a few tips to help you find the best debt consolidation company in the UK.
1. Do The Math: Calculate The Total Cost Of The Debt Consolidation.
When dealing with debt consolidation loans in the UK, you should always remember that a low-interest rate loan does not necessarily mean that it will cost you less. That’s why it is always best to take some time to compute all the charges involved together with the duration of the payment term. This will help you determine the total cost of the debt consolidation loan that you are taking out. It doesn’t make any sense to consolidate your debts if you are going to end up paying more than what you originally owed your multiple lenders. Also, be very cautious of any hidden fees and penalties. Make sure the company discloses all the fees and charges before signing the agreement.
2. Smarten Up by Getting Expert Advice
You can get debt consolidation help online and offline by finding an expert in the field for advice. A debt consolidation expert in the UK can offer advice as to whether this option is right for you or not after evaluating your current financial condition. They can also guide you in using a debt consolidation calculator as well as provide alternatives that you may wish to try before consolidating your debts. Moreover, this expert can help you decide what kind of loan to take out or what agency to choose. Just be sure that the expert is reputable, professional, independent, and trustworthy.
Debts can take a toll on your overall emotional, mental and financial health. That’s why you should consider consolidating your debts to make them easier to manage and settle.