If you are looking into debt consolidation to make your payments more affordable, you are probably aware of the many advantages that go with it. In the UK, debt consolidation helps borrowers lower their monthly payments and waive late fees. It is also a way to reduce interest rates on existing loans and have one monthly payment to take care of. Debt consolidation helps those with excessive debt load reduce collection calls and ultimately avoid filing for bankruptcy.
One way to lower your current interest rate and make payments more affordable is to take advantage of interest rate arbitration. Here, you apply for a secured loan offered with a low interest rate as to pay off multiple unsecured debts. Debt management is another strategy borrowers can take advantage of, with a debt solutions company helping them prepare a budget and pay back their debts. Not only do borrowers manage multiple debts, but late fees might be waived off. Finally, borrowers have the option of debt settlement, whereby a law firm or a settlement company works with creditors as to reduce the total payoff amount. The major benefits are that creditors will reduce the principal balance and lower the interest rate. A fourth way to deal with debt is to opt for chapter 13 bankruptcy, which represents a court monitored debt repayment procedure. There are three benefits to it – creditors reduce the principal, lower the interest, and do not use valuable assets of yours to pay back debt.
With these options in mind, if you are firmly set on debt consolidation, you should know that as many as 90 percent of borrowers in the UK benefit from the procedure if they stick to it. If you have a low level of debt, for example, £10,000 or less, you can benefit from debt consolidation even more. You can go with unsecured debt consolidation, especially if you have a reasonable credit history. A major advantage is that you will be making a single and lower monthly payment. On the downside, it will be more difficult to negotiate at a later point if you face repayment problems. The other type of debt consolidation, secured debt consolidation, is offered to borrowers who are homeowners and have at least 25 percent equity in their house. While borrowers are offered reduced interest, the main disadvantage is that they risk repossession, and they will pay back more in interest due to the longer loan term. Another option is a debt consolidation remortgage which has similarities with secured homeowner loans. The difference is that the full amount of the loan is refinanced rather than having to take out another loan. A lower rate of interest is offered in many cases, even if the borrower does not need to consolidate their loans. Finally, borrowers can opt for an individual voluntary arrangement, especially those who have a total debt of £12,000 or over. This option is suitable for persons who face little prospect of paying their loans back in full, but they may have to repay a substantial sum of money over a period of five years.