The theory behind debt consolidation is basically adding up all of your outstanding debts and taking out a loan that will pay them off. In practice this means that your creditors, however many they may be, will stop hounding you and you now only make that one all-inclusive payment. Debt consolidation is meant to allow you as a debtor to get relief from additional late charges and accruing interest, while making a payment you can afford under your particular circumstances.
The process of debt consolidation does not mean that your debt is automatically lowered, in fact it may be increased but only in terms of the length of time you have to make lower payments for.
However, there are literally hundreds of brokers and agencies in the U.K. that offer debt consolidation services, almost as many as there are new weight-loss programs and you should be at least twice as cautious and discerning in dealing with them. The first and most important step in an attempt to reduce your scheduled payments is getting all of the pertinent information from the prospective lender.
There are several types of loan that may be used for debt consolidation or refinancing of existing loans. Nearly all are secured loans, with the security usually being your home or other real estate owned, or possibly another major asset. There are also unsecured loans available, based on earning capacity and other factors. In general, the worse your credit rating, the more a new loan will cost you.
Mortgage brokers and loan lenders are regulated by the Financial Services Authority (FSA) and you should make sure that your lender is ‘under the umbrella’ of those regulations.
(You can check the FSA’s website to find out if this is the case.) In addition, there is FOS, the Financial Ombudsman Service, where you have recourse if you feel you have a valid complaint about the way your mortgage has been handled.
Any lender should offer you an initial disclosure document known as an IDD. This document provides information about the lender’s policies; whether they have access to many or all of the loan programs available, or whether they are dealing with just one or a limited number of sources. The disclosure should also tell you whether or not the broker or lender will give you advice based on your situation, and what the charges will be for their specific services.
It has been reported that about one out of four adults in the U.K. has experienced a problem with finances that led to a major or minor black mark on his or her credit report. Whatever your circumstances, help is available in the form of information and advice from many sources including the internet as well as the financial pages of your newspaper and magazines available at newsagents.
The chances are more than good that you will be able to restructure your finances so that you can get out of debt and recover your good credit rating, but it will require planning and determination. Just be sure that you have all the pertinent information about different options and their costs, both short and long-term. The more you can show a potential lender that you are making a sincere effort to resolve your financial problems and repay your debts, the better the odds of getting the assistance you need.