At QuidMarket, we don’t offer debt consolidation loans. However, we do believe that it is very important for us to provide a comprehensive picture of all loan types available, so that you are aware of all options available to you. On this page, we will cover debt consolidation loans in the UK, what you should look for if you do need a debt consolidation loan, and discuss how our short term loans differ to them. Hopefully, we will help you make an informed decision about whether debt consolidation loans are the best choice for you.
What Is a Debt Consolidation Loan?
Debt consolidation loans in the UK are available from banks and building societies, credit unions and a variety of online lenders. They are a specific type of loan that are designed to be used to pay off lots of different debts. You might consider a debt consolidation loan if you have outstanding credit card balances, Council Tax, rent arrears or mortgage repayments, personal loans and so on.
The purpose of a debt consolidation loan is to use it to pay off all of your existing debts. What’s more, debt consolidation loans only make sense if you are able to borrow enough to clear all of your existing debts with the loan. By merging the total balance of them into one loan, you should end up with a lower monthly repayment than you are currently paying. However, this isn’t always the case – more on that below.
Debt consolidation loans are typically used when you have a high number of existing debts, are struggling to keep up with all of them and are at risk of defaulting on one or more of them. Generally speaking, if you are able to keep on top of your existing monthly repayments but are simply looking for a way to reduce your monthly costs, debt consolidation loans may not be the best option for you.
Is a Debt Consolidation Loan Right for You?
It is important to carefully look at your finances and determine whether choosing a debt consolidation loan would actually save you money – in some cases, they can increase your total costs. For example, if you are looking for debt consolidation loans to pay off existing payday loans, check each loan agreement to see whether you would need to pay early repayment fees.
Even if the monthly repayments of your debt consolidation loan are lower than what you currently pay, if the loan term is longer you could still end up paying more overall. Or, if your debt consolidation loan in the UK has a variable interest rate, the costs could increase in the future.
Not all people seeking debt consolidation loans have poor money management. However, some people experience a ‘false sense of security’ after taking out debt consolidation loans in the UK, and can be tempted into overspending. If after taking out a debt consolidation loan you do not make spending cuts and close unnecessary credit cards and store accounts, you could find yourself in more debt than before.
Some debt consolidation loan companies charge high fees for arranging your loan. You could also be asked to pay fees for debt consolidation advice – however this is widely available for free. If you use a broker to find debt consolidation loans in the UK, you could also end up paying broker fees. Always read the small print carefully before signing anything.
Before applying for a debt consolidation loan, you should seek debt advice. This is available for free online, over the phone and face-to-face from services such as StepChange Debt Charity, Pay Plan, National Debtline and Debt Advice Foundation.
Can You Get Debt Consolidation Loans with Bad Credit?
Although this loan is specifically designed for those with financial difficulties, it can still be more difficult to be approved for debt consolidation loans in the UK if you have a low credit score. Many debt consolidation loans in the UK are unsecured loans. However, if you have poor credit, you may not be eligible to apply for the amount you need, or would need to pay higher interest rates, which would likely reduce the chances of a debt consolidation loan saving you money at all.
If you do have a lower credit score, you may only be eligible for a secured debt consolidation loan. This could allow you to apply for the amount you need, and at a lower interest rate than you could get with an unsecured one. However, you should consider whether the additional risk of losing your collateral – whether that’s your home, car, or other valuables – is worth the potential savings of the debt consolidation loan.
Alternatives to Debt Consolidation Loans in the UK
Debt consolidation loans might sound like an easy solution for everyone who has debt – but they aren’t necessarily the best option for everyone. These are a few different options that may be suitable – although the right choice for you will depend on your current finances. If you are unsure, it is best to seek free debt advice before proceeding.
Continue with your existing debts – if you have modest debts that you are able to sustainably afford, your best option may be to continue repaying them as usual. During this time, make an effort not to take on any more debt, and set yourself goals to become debt free within a realistic timeframe.
Use your savings to repay debts – if you have money tucked away in savings accounts, consider whether the interest you are gaining on them is worth the interest you are paying on your debts. If you could save money by paying off your debts (remember to check if you are liable for early repayment fees), you might be better off in the long run to use your savings for this.
Get help from a debt adviser – these services are widely available for free. Experienced debt advisers will be able to help you sort out and prioritise your debts for the best long-term outcome. Some debt advisers may be able to negotiate with your creditors and help arrange repayment plans.
Transfer credit card debts to a 0% credit card – if you have modest credit card debts, you may benefit from transferring their balance to a single 0% interest balance transfer credit card. This will only work if you reduce your credit card spending, and will be able to repay the balance in full before the initial interest free period ends.
QuidMarket offers short term loans that are designed to help hard-working people cover their short-term cash flow issues. Our loans are designed for emergencies only, and are not suitable for debt consolidation. If you are experiencing financial difficulties, please visit the Money Advice Service for free and impartial help.