Multiple loans can eventually put you in debt if you do not plan to repay them for a long time. At this point, when you are under different loans, and due dates are ending, you might want to consider debt consolidation as a part of your debt management plans. The right solution can help you turn your debt situation positively. It is the quickest way to become debt-free.
Debt or loan consolidation is the quick way to get your neck out of multiple loans. It enables assembling your various loan into one, allowing easy management with a simple payment procedure. However, you can only consolidate the qualifying unsecured debts into one. If you want professional help to combine your debts, the StepChange number debt consolidation loan is an excellent source to work with.
To know if you have enough loans to consolidate or not, you have to figure out the type of debt.
- Unsecured debt: If you have several unsecured debts, you can easily combine them because they don’t have any security, such as credit cards, student loans, personal loans, etc. Paying them back is not difficult, but the creditors can take you to court for non-payment of debts if you default.
- Secured debt: Secured loan has collateral backing them up. So, you cannot consolidate secured loans. However, if you fail to repay them on time, the court can legally give you foreclosure notice or repossession.
What is debt consolidation?
Debt consolidation, in simple terms, is combining multiple debts of the same category into one and making a single affordable payment every month to cover all the debts. The interest rate on debt consolidation usually remains affordable. You can opt for a Stepchange number debt consolidation loan if you want to get out of debt fast. Debt management will considerably become easier.
Many people in the UK often go for debt consolidation for easy debt management. Besides that, there are 3 significant advantages of debt consolidation.
- Lower interest rate: When you make several debt payments every month, you pay additional interest charges for each loan. At times, the resulting interest charges are higher than the principal loan amount. But with StepChange number debt consolidation loan, you can get out of debt fast with a reduced interest rate.
- Single monthly repayment: Since all your unsecured debts are consolidated into one, you have to make arrangements now to repay only once a month to cover all the money owed to the creditors. You can accomplish your way to becoming debt-free by making minimum debt repayments.
- Become debt-free faster: Most debt consolidation solutions last for about 4 to 5 years. And the StepChange number debt consolidation loan can efficiently assist you with debt management.
The process to consolidate debt with a loan.
While there are many ways to consolidate debts, it would help to know how to combine your loans into one. If you don’t have enough qualifying loans to consolidate but still have considerate unmanageable debts, you should likely go for debt management plans to get out of debt fast. The way to consolidate your loans is as follows:
- Prepare a list of your loans to determine the types of debts to consolidate.
- Include the loan amount owed to the creditors along with its interest rates, additional charges (if any), monthly payment amount, and the due dates.
- Now, evaluate the list of those loan amounts to figure out which debts to consolidate.
- Next, contact the StepChange number for debt management solutions, or seek a debt consolidation loan from a reliable source or lender.
Top 5 ways for debt consolidation
There are several ways to get out of debt fast, but every popular debt consolidation solution might not fit every debt situation. To become debt-free in the most efficient way, you need to weigh every possible option from a reliable source. You can also get into debt management programs and learn about the different risks involved with other debt consolidation solutions.
Your debt matters are different from another and would require another way to consolidate your debt appropriately. Therefore, have a look at these top 5 ways for debt consolidation.
1. Debt Management Plan (DMP)
One of the most standard ways to consolidate debt in the UK is the Debt Management Plan (DMP). A DMP is an excellent choice to become debt-free without taking any additional credit to pay off your existing debts. It is also the best way to avoid bankruptcy if you cannot make immediate payments to get out of debt fast. However, you can seek debt advice from Stepchange debt help.
A DMP is a debt measure that you avail of from a credit counseling agency or a debt management company. In this debt consolidation solution, the service provider negotiates with the creditors to lower the debt value and agree to teh debt repayment plan. The debt interest and charges are frozen as you start making repayments in a DMP. It is a good option to create an affordable minimum payment every month and get out of debt in about 4 to 5 years.
Pros of a Debt Management Plan:
- You have to follow a structured debt payoff plan until the settled debts are fully repaid.
- You stop getting debt recovery calls from creditors or debt collection agencies.
- You can repay your consolidated debts at lower interest rates and for a reduced debt value.
- You can access other debt services like budgeting to build your credit profile while you keep repaying your debts.
- You can make minimum debt repayments as affordable as you.
Cons of a Debt Management Plan:
- You have to pay a one-time DMP setup fee.
- Your credit cards will be stopped.
- You cannot miss any debt payments. If you do, the interest rates may increase.
2. Debt Consolidation Loan (Personal Loan)
A debt consolidation loan is often called a personal loan by the people in the UK. It is another popular way to consolidate your debts and get out of debt fast. It enables the individual to become debt-free in a short time. You can get a suitable debt consolidation loan at attractive interest rates from online lenders, credit unions, and banks.
You can use the debt consolidation loan amount to pay off the consolidated debts at once or make single payments every month with minimum interest. If your credit history is poor, obtaining a debt consolidation loan might be difficult. Before the lenders approve your personal loan application, they do credit checks to determine your credibility. The loan amount and interest rate are settled based on your credit profile. Either way, debt management becomes comparatively more straightforward.
Pros of Debt Consolidation Loan:
- Debt consolidation loan generally comes at lower interest rates.
- You make a fixed repayment for a fixed duration to become debt-free.
- You can pay off any unsecured debt with the debt consolidation loan amount.
Cons of Debt Consolidation Loan:
- A payment procedure in a debt consolidation loan is not flexible.
- The interest rate is settled based on your credit rating and debts.
- Some debt consolidation loan lenders might charge origination fees as a fixed percentage of the total loan.
3. Home Equity Loan or Home Equity Line of Credit (HELOC)
Let’s say that you own a house whose worth is way higher than the debt value. If so, you can get a loan against the house’s equity. For the unversed, the difference between the mortgage payment and the house’s appraisal value is identified as home equity. To obtain a Home Equity Loan at a reasonable rate, you need a good credit profile and sufficient home equity. People who get home equity loans become debt-free within a short duration by paying off the high-interest debts first.
Pros of Home Equity Loan:
- Home Equity loans are generally of 5 to 15 years duration, enabling affordable minimum payments.
- The interest rate on a loan is set based on your credit score and takes your house as security.
- The home equity loan interest can be tax deductible if the money is used to build a house or renovate it.
- Its interest rate is relatively lesser than a debt consolidation loan.
Cons of Home Equity Loan:
- There will be foreclosure if you default on payments.
- Since the repayment term is excessively long, it might be more costly in the long run.
- There is no minimum amount for a home equity loan.
4. Balance Transfer Cards
Balance transfer cards are a good option to consolidate debts if you have more high credit cards debt. To qualify for one, you need a high credit score of about more than 680. To take full advantage of the balance transfer card, you must pay off your existing debts within 18 months when the introductory interest rate on the card is 0%. When that timeframe expires, the interest rate will drastically jump to 15% to 25%. So, if you afford it, you can get out of debt fast within the 18 months introductory rate period.
Pros of a Balance Transfer Card:
- You can consolidate all your credit cards debt into a single payment system.
- There is a 0% interest charge for about 12 to 18 months. You can efficiently remove your debts during this time without paying any interest.
- It is a more efficient solution to handle debt consolidation instead of bank loans.
- No collateral is needed to obtain a balance transfer card. Even if you default, there is not much risk to your assets.
Cons of a Balance Transfer Card:
- Using the extra credit on the card would increase the possibility of more compound debt.
- When the introductory rate period ends, the new rate is way higher.
5. 401(k) Loan
Borrowing from a 401k is not unheard of in the UK. If you choose this option to manage your consolidated debts, you can borrow 50% of your retirement balance of up to $50,000. You get 5 years to pay back this amount. While the standard interest rate here is as low as 1%, some associated risks are. You have to face tax consequences and withdrawal penalties. You should consider a 401k loan to get out of debt fast only as the last option.
Pros of 401(k):
- It has the lowest interest rate compared to other options on the list.
- You do not have to arrange extra funds to repay this amount. It is deducted from your paycheck itself.
- You can obtain a 401k loan without a loan application and no credit score qualification.
Cons of 401(k):
- There are penalties and tax consequences.
- Every 401k plan does not offer loans
- Your employer or company must provide the 401k plan to obtain this benefit.
- You lose the compound interest benefit if you borrow from the 401k plan.
These are the top 5 ways to consolidate your loans when in debt. For more information on them, feel free to contact the StepChange number. Or, you can just get a debt consolidation loan and become debt-free fast.
If debt consolidation options do not work out for you, you have the last option for debt settlement.
If your relationship with the creditors is good, you can offer a debt settlement plan to them yourself. Or, you can approach other debt settlement companies to help you get out of debt fast. Debt settlement companies discuss with the creditors on your behalf to settle the debt at a lower value and interest. However, this solution to be debt-free has a lot of risks involved.
The impact of debt settlement will stay on your credit profile for 7 long years, which seriously affects your credit rating. Either way, in a debt settlement, you are no longer under the pressure of the creditors and can get out of debt fast by making fewer payments than what you owe.
When you look for sources to borrow money for debt consolidation, you must carefully choose. Avoid lenders with bad consumer credit. Or, we suggest you work with StepChange UK for reliable debt management. You should consider consolidating your debts if you have a high debt-to-income ratio.