Repay Your Debts Now with Ease through Debt Consolidation Loans in the UK (2024)

FAQs

Is debt consolidation a good idea UK? ›

The benefits of debt consolidation loans

Having an easily-manageable payment can help you safeguard your credit score, as you may minimise your chances of missing a repayment. Having a single payment can help you budget, as you'll know exactly how much you're paying back every month.

What is debt consolidation? If you've got debt in various places, including credit cards and loans, a debt consolidation loan lets you combine all your existing debts into one place.

Paying off your debts

You can pay your debts in instalments by setting up: a Debt Management Plan which is an agreement with your creditors managed by a financial company. an Administration Order when you've had a county court judgment ( CCJ ) or a High Court judgment ( HCJ ) against you for debts under £5,000.

If you have outstanding debt on more than one credit card, you can apply for a debt consolidation loan. You use this loan to pay off your credit card debt, then repay the loan in monthly installments, usually with a lower interest rate than you were paying on your credit cards.

It all depends on your circ*mstances

As it could lower your monthly repayments, you could avoid missing any more repayments and start to improve your score. On the other hand, if you miss repayments towards your debt consolidation loan, it could make a bad credit score worse.

Your debt consolidation loan could come with more interest than you currently pay on your debts. This can happen for several reasons, including your current credit score. If it's on the lower end, lenders see you as a higher risk for default. You'll likely pay more for credit and be able to borrow less.

If you have excellent credit, high income and are borrowing a relatively small amount of money, it can be easy to get approved for a debt consolidation loan. On the other hand, if you have poor credit, low income and are applying for a large loan, it may be difficult to get approved.

If you do it right, debt consolidation might slightly decrease your score temporarily. The drop will come from a hard inquiry that appears on your credit reports every time you apply for credit. But, according to Experian, the decrease is normally less than 5 points and your score should rebound within a few months.

You can apply for a solution to write off some or all of your debt if you cannot pay them back in a reasonable amount of time. Be wary of adverts talking about ways to write off debt. Get free advice before going forward with any debt solution.

Does a debt ever get written off in the UK? ›

How long before a debt is written off? Court action can only be taken during the 'limitation period'. In England, Wales and Northern Ireland: The limitation period is six years for most types of debt.

You can try to negotiate lower payments if you are struggling with payments. Creditors may allow you to pay less, but this will be marked on your credit file.

Every lender sets its own guidelines when it comes to minimum credit score requirements for debt consolidation loans. However, it's likely lenders will require a minimum score between 580 and 680.

Banks, credit unions, and installment loan lenders may offer debt consolidation loans. These loans convert many of your debts into one loan payment, simplifying how many payments you have to make. These offers also might be for lower interest rates than what you're currently paying.

If you do it right, debt consolidation might slightly decrease your score temporarily. The drop will come from a hard inquiry that appears on your credit reports every time you apply for credit. But, according to Experian, the decrease is normally less than 5 points and your score should rebound within a few months.

Debt consolidation is generally considered a less damaging option for your credit. It may be a better choice for those with good credit who can qualify for a lower interest rate.

Debt consolidation — combining multiple debt balances into one new loan — is likely to raise your credit scores over the long term if you use it to pay off debt. But it's possible you'll see a decline in your credit scores at first. That can be OK, as long as you make payments on time and don't rack up more debt.

Consolidating your debt can lower your monthly payments, but it can also cause a temporary dip in your credit score.