We are specialists in Insolvency and not Independent Financial Advisors. Whilst we have links with such advisors to whom we can refer you should you so wish, our advice on this area is of general application only.
You could elect to deal with your debt problems by way of an Unsecured Consolidation Loan, Remortgage, or Secured Loan. These can be very useful in the right circumstances.
Unsecured Consolidation Loans
Unsecured loans are many and varied. They may range from a loan from your bank to roll all your existing debts into one or taking out a new credit card with a period of zero interest on balance transfers.
These are loans which can be used to pay off your unsecured loans but the new loan is secured on your property by way of second charge. As a result the interest rate will tend to be lower than the unsecured debts they replace.
These are loans by which you not only borrow the money to repay your unsecured debts but also your existing mortgage lender. Generally the interest rate is lower than a secured loan as the lender will have a first charge.
Self-discipline will be required. If you have used any of the above to repay credit card debts it is very important to stop using (and preferably cut up) your credit cards. In our experience, many formal insolvencies arise out of taking out consolidation loans and then running up further credit card debt.
Remember that any secured loan (or remortgage) may well not be with a High Street Lender (particularly if you have defaults) and as a result the interest rate may be higher than on your existing mortgage. You will need to factor any increased payments as a result into your monthly budgets.
Look for any “hidden” costs. Ask about penalties for early redemption (in adverse lending situations these can be significant) and, importantly, how much commission the mortgage broker will receive from the lender. A good idea is to speak to your existing mortgage lender first as they will often come up with the best deal.
Creditors are free to take whatever legal proceedings against you they wish at any time. This can include continuing to obtain county court judgments, a third party debt order or a charging order against your debtor’s property; even when you are making every effort to pay.
Treat any “offers” from existing Unsecured Lenders to convert their debts to Secured loans with suspicion, particularly if you have other creditors. Ask yourself who will benefit from this.
Will a loan type solution work for me?
Consolidation Loans can provide an elegant and permanent solution for those with a number of debts that they wish to convert into one, especially with a reduced rate of interest. Care must however be taken not to make things worse. Interest rates and redemption penalties must be taken into account, and considerable self-discipline will be needed in that further, unaffordable, unsecured debt needs to be avoided otherwise the purpose of the exercise can be defeated.
Try our instant calculator to get an understanding of your options. We would urge you to speak to us so we can assess your circumstances properly. Our expert advice is free – let us help you.