How to consolidate debt
How to consolidate debt
Are you juggling multiple lines of credit? Wondering if it’s possible to simplify and streamline your finances?
Debt consolidation can help you turn credit cards, loans and overdrafts into a single product that is easier to track – and may help to reduce your monthly repayments.
We offer debt consolidation loans to UK homeowners and have helped thousands of people just like you take control of their finances. Read on for more information about the different options and how we can help.
What does debt consolidation mean?
Debt consolidation is the process of using another form of credit to pay off your existing debts and bring the amount you owe across multiple lenders into one payment.
You will receive an amount that clears all your existing debts, leaving you with just one payment to make. At Evolution Money, we may be able to make it easier to settle your other accounts from your creditors, we’ll see if we can pay them directly so you can concentrate on your life with clarity over your financial situation.
If you roll all your existing debts into a consolidation loan, meet your monthly payments and avoid taking out any other forms of credit, you will be debt-free once you reach the end of your repayment term.
How to consolidate debt with bad credit
The most common way to consolidate debt is by taking out a loan that you use to pay off your existing creditors. Once you have settled your other debts, you will be left with one account and one monthly repayments to keep track of.
How do debt consolidation loans work?
Different lenders will have different processes and criteria for their products. At Evolution Money, the process runs along these lines:
- Eligibility check: To get a secured loan with us, you’ll need to be a UK homeowner aged at least 21. Any loan from Evolution Money must be repaid before you turn 70. Using our online checker, tell us how much you need to cover your debts. It’s also wise at this stage to confirm with creditors that you can repay early.
- Talk to us: We will then be in touch to discuss your situation. We’ll go through standard checks such as assessing your credit file and financial history and then tell you how much your monthly repayments could be, as well as your total repayment figure. If it’s right for you, we’ll go ahead and make sure the new loan is affordable for you.
- Pay off existing debts: Once fully approved, you can use the loan funds to pay off your other debts. At Evolution Money, we can make this process easier by paying your creditors directly. This saves you considerable time and effort in reaching out to your creditors.
- Repay consolidation loan: Then, all that’s left to do is make your monthly repayments until your loan is paid off. We’ll help you set up a direct debit so you don’t need to worry about repayment dates and potential impacts on your credit file.
Alternatives to secured debt consolidation loans
- Credit cards: Some cards may offer introductory fixed periods with repayments at low rates of interest (or even zero per cent). Be aware that there may be a fee to transfer balances onto these cards. They can also be difficult to get if your credit score is not high. You may find that the interest rate increases after the introductory period and this is likely to increase the total amount you have to repay.
- Personal loans: An unsecured personal loan does not include any possessions as security. Again, they may not be available if you don’t have a high credit score. Lenders typically offer less money for unsecured loans so you may not secure enough to fully consolidate what you owe.
- Overdrafts: Extending or applying for an overdraft with your current account may be quicker as you’re an existing customer with the lender. It’s unlikely that you would be offered an overdraft on terms that would consolidate your debts or provide a more favorable interest rate compared to a loan. A large overdraft is a common debt that is paid off by a consolidation loan.
- Debt solutions: This includes processes such as individual voluntary arrangements (IVAs), debt management plans and debt relief orders. These may help if you are at risk of bankruptcy or if loans, credit cards and other costs are impacting your ability to cover essential living costs. For more information on debt solutions, visit the Citizens Advice website.
Does debt consolidation hurt your credit ?
Opening any form of credit – be it a loan or a credit card – will alter your file in some way.
Many companies will allow you to enquire or check your eligibility using a “soft search”. This will have no impact on your credit file of your credit file. As part of the application process lender will likely perform a ‘hard search’ of your credit file. This helps them assess how you have handled finance in the past and whether you pose a risk as a borrower.
A hard search may result in your credit score dropping slightly . However, if your score is already healthy, this drop is likely to be insignificant.
If you meet the regular repayments, this could help you build your credit score. Increasing the types of credit on your file and decreasing how much available credit you’ve utilised are other potential benefits of taking out a debt consolidation loan.
Is debt consolidation a good idea?
Debt consolidation may be a smart choice for you if:
- It simplifies your finances: A debt consolidation loan means one simple monthly repayment. You’ll know exactly where you stand if you pay by direct debit, rather than the minimum monthly payments of credit cards – which can keep you in debt for longer.
- It could help you pay off debt faster: With different payment plans over varying timeframes, you may lose track of where you stand with certain lenders. Even one missed repayment can have significant ramifications for your financial health. Focusing on a repayment plan lets you set a clear target for becoming debt-free after you’ve paid off your creditors.
- It frees up more room in your budget: Chipping away at multiple debts can soon add up. Debt consolidation often allows you to reduce your monthly repayments, helping to ease the pressure on your finances.
Considerations with debt consolidation
Like any kind of loan, debt consolidation might not be the best option for everyone.
A consolidation loan does not make you debt-free and you must assess your budget before taking on extra credit. You may have to pay an upfront cost or add fees on top of your existing debts. If you don’t have a high credit score, you may find it difficult to access the best interest rates.
If a debt consolidation loan will mean you are paying more overall, it’s worth seeking other options. You can get impartial debt advice from organisations such as MoneyHelper, StepChange or National Debtline.
How to consolidate debt with Evolution Money
If a debt consolidation loan will help you better manage your finances, use our online form to check your eligibility today.
We offer secured loans from £5,000 to £100,000 to UK homeowners that can help you take the reins again. We’re regulated by the Financial Conduct Authority and proud members of the Finance & Leasing Association so have confidence that we’ll always act with your best interests in mind.
Find out why we’re rated ‘Excellent’ on feefo and have been awarded the platform’s Platinum Trusted Service Award.
For a typical loan of £30,000.00 over 120 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £598.34.
Including a Product Fee of £2,400.00 (8% of the loan amount) and a Lending Fee of £807.00, the total amount repayable is £71,800.20.
Annual Interest Rates ranging from 11.88% to 29.38% (variable). Maximum 50.00% APRC. The loan must be paid back by your 70th birthday. Read more.
Think carefully before securing debts against your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
