Debt consolidation does exactly what it says on the tin – it consolidates all of your current debts into one that can be managed with a single monthly payment.
This is achieved by borrowing enough money to pay off all of your current debts. Once this is done, you’ll owe money exclusively to a single lender, which many people find is much easier to manage in the long run. There are two distinct types of debt consolidation that you might consider:
Unsecured Debt Consolidation
An unsecured debt consolidation loan is a personal loan that allows you to pay off other outstanding debts without risking a high-value item (such as your car, or home) as collateral. Generally speaking, these loans allow you to borrow up to £25,000.
These loans are more likely to be accepted on lower values, and if you’re a lower-risk borrower.
Secured Debt Consolidation
If you need to borrow over £25,000, or if you’re finding it difficult to find an unsecured loan as a result of poor credit history, or for any other reason, a secured debt consolidation loan might be a better fit for you.
For a loan to be ‘secure’, lenders will use collateral as a safety net to ensure that they’ll get their money in the event that you can’t pay. For example: if you offer your car as collateral, if you miss payments, the lender might repossess it as a way to ensure full payment. If this is an option you’re considering, you should make sure that the monthly payments are affordable – take plenty of time to research to find exactly the right loan for you.