IVA Solutions

	enquiry form

	iva debt solutions

	what is bankruptcy?

	why consider an informal repayment Plan?

	what is secured and unsecured debt?

	causes of debt

	dos and don'ts on debt

	why am I blacklisted?

	debt/iva faqs

	see also debts over £15k menu

IVA Advice & Solutions

What is Consolidation?

It is not unusual today for someone to find themselves in a position where they owe money to a number of different creditors. For example many people look into their wallet or purse to find multiple store card, credit card and catalogue account cards.

For some people, having to make multiple payments to different creditors like these is time consuming and inconvenient. They would prefer to consolidate all their debts into one and have just one monthly payment to worry about. Others consider the annual rate of interest charged by store cards, catalogues and credit cards. This tends to be much higher than the rate of interest charged on a personal loan by a high street bank.

A consolidation loan can be the answer to this problem. All the different card balances and even smaller loans can be paid off with the single loan. This will often offer a single monthly payment which is lower than the combined total of the different cards. The loan will normally be payable over a fixed period meaning that it is clear when the debt will be repaid in full

When Should I Consolidate My Debt?
Taking a decision to consolidate debt must NOT be taken lightly. There are a number of factors which must be considered very carefully.

Can I borrow enough to consolidate all my debt?
The most important thing to remember when consolidating debt is to consolidate everything. The advantages of consolidation may be lost if after taking a loan, and paying off some debts, you still have outstanding balances on other cards or catalogues. Therefore it is very important to understand exactly how much money you owe to your different cards and catalogues. If you believe that you owe so much that it will be impossible to consolidate everything into one loan, then perhaps consolidation is not the right solution for you.

How Much Will I Actually Repay?
When borrowing a loan, people do not usually stop to think how much they will actually repay including interest and payment protection charges. Clearly, if you borrow £10,000 in cash from your bank, you will not just have to repay the £10,000. The bank will also add interest and charges for any payment protection plans. Therefore you will certainly repay more than the £10,000 you borrowed. The question is how much.

Most banks will give you a list of their interest rates. However, the easiest way to make a decision about a loan is to think about the actual amount in £s that you will repay. This is very easy to calculate. All you have to do is take the monthly repayment amount that the bank will take from you and multiply by the number of months the loan will last.

What Monthly Payment Can I Afford?
Clearly, many people try to consolidate to reduce the total monthly cost of their borrowing. However, very often, individuals decide to take a consolidation loan without first considering how much they can afford each month. It is no good taking a loan only to find that the monthly re-payments are too high. This will mean that in trying to make the loan payments, you will start to struggle in other areas like paying for the weekly shopping. Before you know it, you start to use the old credit card accounts again and the balances you paid off with the loan reappear. Only now, the situation is worse because you also have the loan payment as well.

How Long Should My Repayment Period Be?
Most banks will offer different periods over which a loan can be re-paid ranging between 12 and 60 months (or in some cases even longer). In general, the shorter the repayment period, the higher the monthly payment will be but the lower the total amount of interest. Clearly, most people want to be in a position where they can repay their loan as quickly as possible, however, this will depend on how much you can afford to repay each month.

After Consolidation, Cut up the cards!
The greatest mistake made by people who try to consolidate their debts is that after the consolidation process, they do not cancel their card accounts. It is all too easy to say, “I will not use my card, but I will just keep it in case of a rainy day.” The problem is that the temptation to use our credit cards is often too great. There is always something that comes along which is all too easy to pay for with a credit card instead of saving for a couple of months.

Serious debt problems begin when people try to consolidate their debt by taking a loan, only to find that in a few months their credit card, store card and catalogue accounts have crept up again – often to the levels they were before the consolidation loan was taking in the first place! Before you know it, you fall into the trap of Robbing Peter to pay Paul. If you feel that you are in danger of falling into this trap, please take further advise as soon as possible.

Should I Borrow Against My Property - Secured Borrowing?
If you have a property, you may find that you have equity. Equity is the difference between the total amount owed on the mortgage and any other secured loan and the current market value of the property. In today's environment of increasing house prices, many people are finding that they do indeed have significant equity. It is therefore possible to release this in the form of cash either through an extension of the mortgage or a secured loan.

Borrowing money against your property can be an extremely good way of consolidating debts. Very often you will be able to borrow more then you would be able to with an unsecured loan from the bank. The monthly repayment could also be significantly lower as a mortgage is normally paid over a longer period of time (often 15-25 years). However, remember a mortgage or secured loan is borrowed against your property. If you borrow and then are unable to maintain the monthly repayments, your property may be at risk of repossession by the bank.

If you are considering borrowing money against your property, you should talk to your current mortgage lender first. Very often, it will be cheaper in the long run to add to your current mortgage rather than taking a secured loan from a third party.