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The Best Way to Consolidate Debt

There are several ways to consolidate debt but a specialist loan might be one of the best. Learn about your options and find out more information here.
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If you’re looking to consolidate debt, there are several ways you can do it. So many in fact, it can sometimes be difficult working out which one is the best option for you. Here are some of the options available to you and why we think a debt consolidation loan is one of the better solutions.

What is the best way to consolidate debt without hurting my credit score?

A credit score and a big question mark.

It will be very hard to consolidate debt without hurting your credit score. However, with a consolidation loan, the negative effects should only be temporary. Moreover, a decline in your credit score shouldn’t be as severe as other debt solutions.

Initially, taking out another line of credit will probably have a negative effect. However, once you start paying off your creditors, close accounts, and make regular payments on time to the loan, you should see improvements in your credit score.

Let’s be honest, would your credit score have improved without a loan?

If struggling to meet your financial obligations, resulting in creditors chasing you for money, your credit score will probably be in a relatively poor state anyway. Although it could decline further with a consolidation loan, it’s likely to recover much faster as you start keeping to the repayments.
In comparison with an IVA or debt management plan, these solutions are on your credit report for at least six years. In this situation, it’s very unlikely your score would improve until after this point.

Debt consolidation loan or balance transfer?

One option to consolidate your debts is through a credit card balance transfer. If you have a lot of credit card debt across several accounts, you could potentially combine all this into one amount. If you can find a provider which offers 0% interest on balance transfers, this could be a good way to consolidate what you owe.

However, this does have some drawbacks:

  • Most providers will charge you a fee for moving debts to a balance transfer card;
  • The 0% interest period is usually an introductory offer. If you don’t clear your debts during this time, you could be charged expensive rates of interest.

Take from retirement funds

If you’ve been putting money into a pension, and you’re over the age of 55, you might be able to withdraw funds from it to repay some of your debts.

In theory, you should be able to withdraw as much as you like. However, this method should be considered a last resort as the more money you withdraw from your pension, the less you’ll have to live on when you retire.

Take out a personal loan

Although a debt consolidation loan is a specialist product designed to help you get on top of your finances, a personal loan could also do the job. However, the problem with this option is that lenders will typically offer the best interest rates and offers to those with excellent credit scores.

Chances are, if you’re already struggling with multiple debts, your credit score won’t allow you to claim these deals. As a result, you’d probably get a better offer with a debt consolidation loan. These are typically available to those with poor credit.

Use a debt consolidation loan

Also frequently available for those with bad credit, a debt consolidation loan is a specialist financial product designed to repay all your lenders and leave you paying one affordable monthly payment.

This solution is often the best way to consolidate debt if:

  • You’ll be paying less overall interest on the loan compared to your debts;
  • You’ll ultimately end up saving money.
A woman looking at her phone considering applying for a loan.

Can I apply for debt consolidation?

If you want to find out more information about debt consolidation, then our team will be happy to answer any questions you might have. Simply get in touch and we’ll be able to determine – free-of-charge – if this option is the right debt solution for you.

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An advisor pointing to a screen displaying Rep APR.

APRs from 5.8% to 89.9%

We are a broker, not a lender.

Unsecured Loan Representative 69.9% APR

Borrowing £7,500 over 36 months, repaying £502 per month, total repayable £18,083. Total cost of credit £10,583. Interest rate 69.9% (variable). The lenders on our panel offer loans for 12-60 months, with rates from 5.8% APR to 89.9% APR. The Representative Example is based on all loans paid out by lenders between 19th Apr 2022 and 23rd Dec 2022.

Secured Representative 11.7% APR

If you choose to add fees to the loan: Assumed borrowing of £25,000 over 120 months, plus a broker fee of £2,500 and a lender fee of £250 would result in monthly repayments of £345.55, the borrowing rate is 8.6% (variable), the APRC is 11.7% (variable), total charge for credit £16,466.00 and the total amount payable £41,466.00. You can opt to pay the lender and/or broker fees upfront, your adviser will discuss these options with you.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it. All rates vary subject to loan amount, loan type and status. Repaying your debt over a longer period of time may increase the amount you pay.

Further reading

What are the Different Kinds of Unsecured Loans?

Understand what an unsecured loan is, and how best to use the different kinds of unsecured loans in 2023.

What are the Different Types of Secured Loans?

With so many different types of loans available, it can be difficult to know which is right for you. For more information on secured loans, read this expert article.

Persistent Debt – What Does it Mean for Your Credit?

Persistent debt can affect your credit rating for a significant time period. Read to find out more.