If you’ve been thinking about getting a debt consolidation loan or debt consolidation in general, you may be wondering if you can get it done by yourself.
Do you need to pay for financial services and support – or is it okay to do it alone?
The great news is that it’s certainly possible to consolidate your debts without needing to pay for help. And there are many debt charities that offer personalised guidance for free. Allow me to explain.
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Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable
Can I consolidate my debt on my own?
You can consolidate debt on your own without any outside support or paid-for services. If you do decide to consolidate debts on your own, make sure you take your time to calculate your finances and compare monthly repayments accurately.
The other options involve using debt management companies. These professionals will assist you in searching for various options, applying and negotiating with your creditors. But it comes at a cost by adding fees to your monthly payments.
Even organising a DMP is possible on your own – or a debt advice charity can organise it for you for free.
The only time it is always best to pay for professional assessments and support is if you are considering remortgaging for debt consolidation.
DIY Debt consolidation: how to consolidate debt yourself
Here are the four key steps to consolidate debt and apply for a debt consolidation loan yourself:
#Step One: Get free advice
Okay, we said you could do this yourself, and you absolutely can. But why wouldn’t you take advantage of free debt advice from a UK charity like Step Change or National Debtline?
Their guidance is always confidential, and you should use them in the very beginning just to check that debt consolidation is right for you. There might be a better way out of your debt, including ways to write off the debt so you don’t have to pay a penny.
Lender | APRC | Monthly payment | Total amount repayable |
|---|---|---|---|
| United Trust Bank Ltd | 6.34% | £219.34 | £26,320.83 |
| Pepper Money | 6.86% | £220.24 | £26,429.17 |
| Together | 7.99% | £222.20 | £26,664.58 |
| Selina | 8.45% | £223.00 | £26,760.42 |
| Equifinance | 9.95% | £225.61 | £27,072.92 |
| Evolution | 10.2% | £226.04 | £27,125.00 |
| Spring | 10.5% | £226.56 | £27,187.50 |
| Loan Logics | 11.2% | £227.78 | £27,333.33 |
#Step Two: Search the market
Search the market for debt consolidation loans or balance transfer credit cards. In addition, speak with creditors to learn about your DMP options. This part will take the most time.
And you must remember that the advertised interest rates represent 51% of applicants only. Lenders may charge you lower or higher interest rates. Make sure you shop around for a low-interest rate.
#Step Three: Contrast and compare
Compare the rates you found with the cumulative interest rate you are currently paying across the debts you wish to consolidate.
If you’re not savvy with numbers, get help from a friend or call a debt advice charity again. Always consider other credit card and debt consolidation loan terms. Consider the total amount you will repay over the life of the consolidation loan.
#Step Four: Hold your horses…
Wait for the decision. It usually arrives quickly, but applying for other personal loans and credit cards while you wait is a bad idea.
Each application leaves a hard search on your credit score. This could actually stop you from getting a debt consolidation loan or balance transfer credit card in the near future.
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Can I consolidate all of my debt?
Debt consolidation is often used to pay off all of your current debts, so you only have one remaining debt left. However, there is nothing to say you have to pay off every debt with the new credit you receive.
You might currently have five debts and only consolidate three of them into a new one, meaning you would now have three debts. This is still reducing the number of debts you have, and thus, it is still debt consolidating.
Before deciding to consolidate your debt, it’s crucial to get a holistic understanding of your current financial situation. You must do the following:
- List all your debts, including their interest rates and their monthly payments.
- Figure out how much you can realistically afford to pay monthly on a consolidated loan.
A common misconception about debt consolidation is the idea that you’re instantly debt-free or that your debt is now manageable and dealt with. That’s not always the case. Although a step in the right direction, it still requires complete dedication to repay the loan on time and discipline not to be tempted to borrow again.
What is the safest way to consolidate debt?
A debt consolidation loan, a balance transfer credit card and DMP are all relatively safe ways to consolidate debt and streamline monthly payments.
Remortgaging for debt consolidation is considered much riskier because it is a secured debt.
That said, these debt management strategies should only be done with careful consideration and realistic financial planning.
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- Stuck paying high interest on credit card debts & loans?
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How do I consolidate debts into one payment?
There are various methods of taking out new credit for the purpose of debt consolidation, namely:
1. Debt consolidation loans
A debt consolidation loan is a type of personal loan used for the sole purpose of paying off other debts. If you get a debt consolidation loan, the money you receive must be used for this purpose.
However, there is nothing stopping you from applying for a generic personal loan and using the credit for debt consolidation purposes. When applying for a debt consolidation loan, your credit score will be checked.
2. Balance transfer credit card
A balance transfer credit card is a debt consolidation option if you are only consolidating credit card debt – not personal loans or anything else.
You simply transfer the credit card balances of your other credit cards to the balance transfer credit card.
There is a small transfer fee for this, but new balance transfer cards often come with a 0% interest welcome offer lasting a few months.
This can save you a fair bit of money, depending on the total amount you owe and personal circ*mstances.
3. Remortgaging
The third option for homeowners is to remortgage and use the equity released from the property to pay off other debts.
This is one of the most risky strategies because you use a secured loan – i.e., a mortgage – for debt consolidation. Not to forget that you will then be paying back your mortgage for longer.
4. Debt solutions
A third alternative to debt consolidation loans is using a debt solution. The most common solution for debt consolidation is a Debt Management Plan (DMP).
A Debt Management Plan allows the debtor to make a single monthly payment to help pay off multiple debts.
So, the plan itself is used to consolidate even though you still owe each creditor individually. You may be able to negotiate a plan that doesn’t make you pay interest rates within your repayments, but it can be difficult to achieve.
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