If you have several unsecured borrowings to your name, you may find that keeping on top of the repayments each month is something of a challenge – even if they’re not worth much on their own.
When you have numerous different borrowings you need to keep track of and each has its own repayment term and interest rate, it can be confusing keeping up with who’s owed what and when. If some of them charge a particularly high rate of interest, it can also be expensive.
Is consolidation a solution?
If you’re struggling to manage your unsecured debts, there are several solutions available that might suit your circumstances. One of these is debt consolidation.
Debt consolidation is a way of merging all your smaller debts into one, so you no longer have to worry about making lots of monthly repayments. In the simplest terms, it works by you taking out a larger loan ideally with a lower interest rate than you’re currently paying and clearing all your smaller unsecured debts with these funds. You then pay back your large loan through one monthly repayment.
How can I do this?
There are several products available that allow you to consolidate your debts. According to a recent survey conducted for us*, the most popular among UK borrowers who plan to consolidate their debts in the next five months is a secured or unsecured loan; with two-fifths of these respondents saying they planned on doing this.
Other ways of consolidating your debts include paying them off with a low interest credit card, or remortgaging. This is where you take out a new, larger mortgage that includes the additional money you need to pay off your debts. The money you owe for the debt consolidation is then paid back in monthly instalments as part of your mortgage agreement.
Is it suitable for everyone?
Debt consolidation is not suitable for everyone. For instance, if you plan to remortgage or take out a secured loan, it will be secured against your home, so if you’re not a homeowner or if the proportion of equity you own is small, you will not be eligible.
It’s also important to keep in mind that because you’re probably going to be paying back a smaller sum each month than you were when you had several loans, it will take you longer to repay it – and you may end up spending more on interest overall. However, managing your finances should be simpler because you’re making just one monthly payment.
Before you make your decision, be aware that if you remortgage or secure a loan against your property, your home could be at risk if you don’t keep up with the repayments.
As with any credit, it’s worth getting expert advice to find out whether debt consolidation is suitable for you. The experts at Ocean Finance can help you decide whether debt consolidation suits your circumstances, and – if it does - will search its panel of lenders to find the best deal for you.