Debt Consolidation – How it works

Total Unsecured Debt

Under £15000 Over £15000

Number of Creditors

Monthly Income

Are you a Home Owner

Yes No

Debt consolidation in the UK is the process where a debtor takes out a single loan to pay off other existing loans. This can be done to secure a lower interest rate, and hence make lower monthly repayments, or just to simplify your repayment plans. Unlike debt management, where your previous debts are not cleared, a debt consolidation loan clears old your existing debts.

Debt consolidation takes a number of forms; either as the conversion of multiple unsecured loans into a new, unsecured loan, or debts can be consolidated into a secured loan against an asset, most often a property, which be used as collateral. Because a secured loan offers less risk to the creditor, the interest rate can be lower, and hence a consolidated loan can be cheaper. The risk to you the debtor is that you could lose your home if you fail to keep up repayments.

For most people in the UK, debt consolidation offers advantages to people with high levels of credit card debt because at the present time credit card interest rates in the UK are generally higher than those offered by the banks. Other groups that would benefit from debt consolidation are individuals with high levels of debt against high street store cards, of which there have been some 14 million issued in the UK, with an average APR of about 30%. In a recent report by the UK Competition Commission ("Store Card Credit Services", September 2005), it was claimed that many shoppers were paying inflated interest rates on their chargecards and being overcharged by £ 100 million each year.

Clearly, for many people there can be benefits to simplifying your credit commitments and consolidating them into one existing loan, thus potentially:

• Reducing financial commitments
• Reducing the risk of paying fees due to late payments to one or more of your creditors
• Alleviating the stress in having to deal with multiple creditors each month

How Debt Consolidation Works:

If a debt consolidation plan is the best option for you, your old loans will be paid off and replaced with a new one on more favourable terms, and your previous credit rating should be kept intact. You will then have a new loan with a single monthly payment.

If you still have any questions about a debt consolidation plan, you can have a look at our debt FAQ page, or you can call us. For a non-obligatory review of your finances you can fill out our debt problems application form or call us directly at the number listed. All information collected during the procedure is entirely confidential. It's important to us that you aren't kept waiting, and you will hear from us within 24 hours. Should you decide to use our services, in most cases the necessary work can be done over the telephone.