Secured loans for debt consolidation are available from £1000 to £1 million while unsecured debt consolidation loans are available for amounts from £5000 to £100,000, depending on your circumstances.
These are typically where you take out a single loan which is large enough to pay of all of your existing loans and credit cards, the idea being that you either pay your credit off quicker, so paying less interest or, you end up with a lower monthly payment so that you can afford to live and have peace of mind knowing that your debts will be cleared by a date you choose.
Debt Consolidation loans are typically but not exclusively secured (against your home). If you have bad credit then it is almost certainly going to be secured.
Debt consolidation loans work by combining many smaller amounts of credit (usually at a high interest rate) with one large loan at a smaller rate but over a longer period of time meaning lower monthly payments. People with a bad credit history eg defaults, county court judgements (CCJs), mortgage arrears, bankrupts and IVA repair can be accepted.
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These days, more and more people are turning to debt consolidation as a way of breaking free of the burden of debt.
What is a debt consolidation loan ?
A debt consolidation loan is a single loan that can be used to pay off multiple existing debts. These debts may have been incurred through personal loans, credit cards, overdrafts, or may represent any number of unpaid bills that have built up over time. Consolidating debt by paying off one large sum of money rather than lots of smaller debts is easier to manage. You only have to remember to make one repayment each month, rather than trying to juggle and keep track of several different ones.
A debt consolidation loan can be an effective solution if you have accumulated a lot of high-interest debt through an assortment of credit cards, store cards, personal loans, in fact any type of debt that you are struggling to pay back. A debt consolidation loan involves combining and repaying all existing debt and replacing it with one single loan, usually at a better interest rate, which means that monthly repayments are reduced and you are able to pay back the money you owe sooner.
If you are paying off credit card and store card debt by consolidating it into one single loan, in effect you will be swapping your unsecured debt for what is likely to be secured debt. The repercussions of missing repayments on a secured loan are much more serious than with unsecured debt, as instead of risking card repossession and a poor credit rating, you are now also running the risk of losing your home.
To decide how much you need or whether a debt consolidation loan would be right for you, sit down and write down everything that you owe, from high interest loans and credit card balances to smaller debts, even that escalating bill your newsagent keeps pestering you to pay! Next, calculate how much you would need to borrow to clear all this debt, and how much of the new loan you can realistically afford to pay back each month. Remember, you are in debt for a reason so you need to be honest with yourself. You are only clearing existing debt, so bear in mind that household bills and other ongoing expenses are still going to be landing on your doormat. So think about how much money you have left over after all these monthly bills, mortgage repayments and other unavoidable expenses have been taken care of.