An Overview Of Debt Consolidation:
by Brian Talbot, DCL UK
Debt is one of those things that can sneak up on a person. One missed payment becomes two and soon people are up to their ears in debt. All the credit card balances are at their limits and additional items are being purchased on payment plans.
Everyone can find him or herself in debt for nearly any reason imaginable. Recognizing the issue may help prevent the behavior from continuing but it does nothing for the debts that already exist.
The best way to handle the situation is to take action. Debt consolidation help comes in the form of counseling and debt consolidation loans. Professional debt counselors offer personal and business debt consolidation advice designed to lessen the burden of debt as quickly as possible.
A debt consolidation loan is one tool they often recommend. Many UK consumers encounter a financial crisis during their lifetime. The situation may be due to job loss, overspending, or a personal or family illness or other emergency.
In most cases, this status is not permanent, provided that the individual looks for ways to rectify the issue. The best thing that a person facing debt can do to prevent the situation from worsening is to deal with the issue, not ignore it.
Paying no mind to a mounting pile of debt will only make it grow. Though you may have heard of the term debt consolidation, many people do not understand what it means. This process involves consolidating outstanding debts into one monthly payment.
Debt consolidation loans feature a lower interest rate than exists with each individual debt. They also have a lower monthly payment than what the consumer was previously paying for total outstanding debts.
People use this type of finance to get themselves out of debt quickly so they can avoid more severe financial situations like bankruptcy. By consolidating their debts, consumers organize outstanding bills so they will not miss any payments.
For anyone struggling to balance career and family life with running a household, this in itself can make all the difference. Having only one bill to pay on a specific date means no more late or missed installments, helping to repair the credit score.
People turn to companies like ours because their monthly store card, credit card, and loan payments have become unmanageable. Perhaps they did not receive an expected raise at work, maybe they overspent, or they may have lost their job.
Whatever the case, they are looking for a way to replace their expensive debt payments with a single payment that is lower than the sum of the others.
By contacting us you can get help from professional debt experts, who can help to improve your financial footing, begin repairing your credit history, and get your credit score to an acceptable level.
So How Does This Work?
Before anyone includes a loan in the debt management plan, they should understand how it works. Outstanding debts are first listed and then summed, resulting in a figure representing the total amount of outstanding debt.
You can then apply for a debt consolidation loan in this amount and use the funds to repay the individual debts. What remains is the loan itself and you make monthly payments on this loan over a predetermined period.
Interest rates and repayment periods vary depending on the financial status of the borrower. The monthly payment amount is dependent upon the total amount borrowed and the repayment term.
Secured debt consolidation loans require that an asset like the home be provided as collateral. You can typically borrow between 5,000 and 75,000 pounds. You may even be entitled to borrow up to 125 percent of your property value.
With a secured loan, it is especially important that the borrower make timely and complete payments, as failure to do so could place your home in jeopardy. Defaulting on this loan can cause the home to be repossessed, a situation much worse than any amount of debt.
There are a few things to be aware of when considering debt consolidation loans. A very important aspect is that only unsecured debts can be consolidated.
Credit card, personal loan, line of credit, and some student loan debts should qualify. However, a mortgage will not because it is backed by an asset, the home. A car loan is also not eligible for consolidation because the car is used to back it.
Another factor to consider is that though the damage will not be as severe as bankruptcy, credit score can be affected. When some companies negotiate a settlement with a creditor that is less than what is owed, this often appears on the credit report as a failure to repay the amount promised.
Less reputable firms may allow accounts to remain unpaid for several months before settling them, damaging the persons credit score in the interim. Over the short-term, using a debt consolidation loan to repay outstanding debts should not significantly affect the credit score either way.
Though new debt has been assumed, the credit report will reflect that other debts have been repaid. Making the required payments on time over the long-term should improve the credit score.
How To Get A Debt Consolidation Loan:
After adding up all the debts that qualify for consolidation, you will know how much money is needed. Listing the current interest rate next to each item provides a quick assessment tool for the loan comparison process.
As mentioned previously, interest rates, length, and amount loaned will vary. The type of interest rate will also differ, with some lenders offering fixed rates while others offer adjustable rate loans.
Income, credit rating, and amount of equity determine which programs and rates of interest will be offered.
During this process, we will take the time to research the reputation of the lender.
Once a reputable lender offering an excellent loan is found, we will help you complete the application.
Online lenders may allow this to be done electronically. All requested documentation should be provided in the desired format, which may be in person or via, mail, fax, or email. All the loan and credit card statements that will be paid off should be included in this documentation.
This provides the lender with the information necessary to contact these creditors. It takes approximately three to four weeks to complete the process. The lender may contact you periodically to request additional information or provide a status update.
Some lenders require that the debts be repaid through escrow. This means that the existing balances will be repaid when the loan closes. This requires patience on your part and maintaining the accounts so they do not fall into arrears.
A debt consolidation loan should reduce the overall amount of interest and monthly payments made for the relevant debts. Once these balances are repaid, you are left with only a single payment to make each month.
Some lenders allow borrowers to select their monthly repayment date. If this is offered, review to budget to find a date when the required amount of money will be available in the bank account.
If direct debit payment is an option, consider this because it ensures timely payment each month.
Debt Consolidation Loans UK
A single lender can offer an ample selection of debt consolidation loans and in addition to finding lenders via our site, you can read informative articles containing advice from debt experts.
We also have access to electronic resources, materials, and tools provided by counseling services. Being able to conveniently access all this information any time of day has made us a debt management team you can trust.
However, you should not only know how to get yourself out of debt, you also need to understand how to prevent the situation from reoccurring. Having unpaid bills is never a pleasant situation, but when you know there is help online or over the telephone, the situation is easier to handle.
You can even meet with lending officers in person to explain their situation and get assistance with finding the best solution. For many, an unsecured or secured debt consolidation loan will be the answer.
After completing a paper or online application and providing the required documentation, an approval decision will be made and if it is positive, you will receive the money within a few weeks. No one wants to be taken advantage of and this is why we thoroughly research all appropriate consolidation lenders.
The Office of Fair Trading is the UK government agency for consumer protection. It has investigated the practice of consolidating debts and study results are available on its Web site.
The UK Consumer Credit Counselling Service has been offering free debt counseling to UK residents since 1993. Over half a million people receive assistance with debt issues each year and over 100,000 of them are placed on a debt management plan designed to improve their financial situation. Consultations are private and help begins by clicking the debt help button on the home page of the CCCS Web site. Knowing that there are organizations willing to offer help and tools like debt consolidation loans that can relieve debt is comforting.
The sooner people take control of their debt, the better because it enables a solution to be implemented before things spiral out of control. There is no better feeling than repaying all debts and beginning to rebuild financial status.
Is Your Debt Consolidation Company Charging You Too Much?
Getting out of debt is a long and sometimes frustrating process. At times, the best route to go is in consulting a debt consolidation service to help.
However, some of these companies are fraudulent and are doing nothing more than submitting your payments for you. If they are charging excessive fees, it may be best to look elsewhere.
For instance, if you are paying a total of £120 per month and the company is deducting £25 pounds per month as fee, you are still paying over 20 percent in interest charges.
The whole point of using a company such as this is to lower your debt interest rate, not increase it.
Companies that charge fees such as this will often promise a reduction in interest rate and organization of your bills.
However, even if they get your bad credit credit cards reduced from 29.9 percent to 10 percent, you are in essence still paying 15 percent interest on the debt.
It is not uncommon for them to take your first payment as a fee and then apply all payments afterwards to your debt. If this is the case, you should receive a schedule of payments detailing where the money is going and projected date of complete payment.
If they have excessive fees, they are more than likely ripping you off. When you are trying to get out of debt, every penny counts, so be very careful and avoid fraudulent companies.
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