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What is Debt Consolidation? Debt Consolidation explained! Plus available solutions from Shire!

So, just what is debt consolidation? Well put simply, the consolidation of debt is the act of combining many existing credit commitments and replacing them with one singular, but larger payment.

The following glossary article 'What is Debt Consolidation? Debt Consolidation explained!' takes a look at the many points that should be taken into consideration when it comes to the consolidation of debt, along with the advantages and disadvantages of consolidating debt, and how we could help you make a fresh start!

What is Debt Consolidation? Debt Consolidation explained!

So, if you are reading this you might well be asking yourself 'Just what is Debt Consolidation exactly?'. Well, as we already established during the introductory text, the consolidation of debt is the act of replacing many credit commitments with just one singular credit commitment. Homeowners often carry out this exercise by remortgaging their property.

As with most things in life, debt consolidation has advantages, and disadvantages. In the following section we try to explain some of the benefits of debt consolidation, as well as some of the drawbacks that debt consolidation could bring.

The advantages of Debt Consolidation by remortgaging

There are many advantages when it comes to remortgaging for debt consolidation and these include:

  • Reduction in monthly outlay
    Lots of people these days have run up considerable balances on credit and store cards, as well as having a variety of other credit transactions such as bank loans, HP and secured loans. Often family budgets become strained with the amount being paid out each month, especially if income suddenly drops because of a reduction in overtime, commission or bonus payments, or even job loss. So it may be prudent to reorganise these types of financial commitments by consolidating them into one account with a more manageable and affordable payment. Our experience has shown that customers can often reduce their monthly outlay by up to 50% - or even more!

  • Reduction in interest rates
    It may be worth comparing the interest rates that you are currently paying on your credit card balances as well as your HP and personal loan commitments. There's usually no cheaper commercial way of raising cash than by borrowing against the security of your home.

  • Longer repayment period
    Remortgaging will usually allow your borrowings to be taken over a longer period of time than those available with bank loans, HP or credit cards. You can therefore help your refinancing by selecting a repayment period that suits your pocket more comfortably, and will help take the strain out of your monthly outlay!

The disadvantages of Debt Consolidation by remortgaging

It is important that you also carefully take into account the disadvantages of debt consolidation by remortgaging, and these include:

  • The interest charges are likely to be greater
    Although borrowing money against the security of your home will usually be at a cheaper rate of interest than those levied on credit and store cards, HP and personal loans; by extending the term of your borrowing on the remortgage, it is likely that over the longer period of time that you take to repay the new transaction, inevitably you are likely to repay more in interest charged than you would have done if you had paid your borrowings over the initial contractual term.

  • Your home is at risk
    Because you are using your home as security for your remortgage, you will be converting the consolidated debt from unsecured borrowing to secured borrowing. This means that in the event you are unable to make your repayments, your home could be repossessed as a result.

Because of this, we will usually strongly recommend that you take measures to protect your borrowings by carefully considering Mortgage Payment Protection Insurance to cover you in the event of Accident, Sickness and Unemployment if you are unable to work, lose your job or become incapacitated.

Would you recommend Debt Consolidation?

The prudence of debt consolidation depends on many factors.

Obviously, in order to provide advice and make any form of recommendation, one of our professionally qualified Advisors here at Shire Direct would need to carefully assess your needs, circumstances and aspirations. Amongst other facets, the advisor will take into account your income and present outgoings, the extent and type of the credit you have outstanding, the interest charged, and penalties for early settlement.

Clearly there are advantages in consolidating your debts, especially if your income has suddenly been reduced as a result of reduction in overtime pay, bonus or commission, or loss or reduction in secondary income; and you find yourself in a position where your outgoings now exceed your income. Obviously, this situation cannot continue, and will require addressing as a matter of urgency. It is possible that a refinancing exercise would be appropriate, or it may be more appropriate to consider selling your home and down trading in order to release the equity in your home to pay-off at least some of your debt, and to reduce the size of your mortgage. However, trading down is not always an option.

If the most suitable route was debt consolidation by raising money on a remortgage, then the Advisor would generally ensure a degree of flexibility wherever possible, in order that when your fortunes do recover themselves, that you would be in a position to step up your repayments in order to discharge your mortgage more quickly, thereby reducing the term, and ultimately the interest you would have to pay!

Need further advice on debt consolidation and help to make a fresh start?

So that concludes our look at debt consolidation. We hope we've managed to answer your initial questions and explain debt consolidation by remortgaging. Naturally, we'd be delighted to assist in any way we can in helping you make a fresh start! So, why not enquire online at any time, or give one of our specialist mortgage advisors a call, who will be more than happy to discuss your circumstances and available options with a sympathetic and non-judgemental ear. Call us today on Freephone 08000 282 281, lines are open from 8am until 10pm, seven days a week. We'd love to hear from you!

Enquire Online now, or call us today 08000 282 281 - our freephone lines are open 8am-10pm everyday! We'd love to hear from you!

Mortgages/Remortgages: The overall cost for comparison is 9.8% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. APR variable and based on a usual case. Most customers are likely to receive a lower rate or the same rate as our overall cost for comparison rate - learn more about APR.

There are no upfront broker fees.
However, a fee may be charged on successful completion. An indication is that on conforming cases (straightforward applications with no or minimal adverse credit) a fee may be charged of up to 1% of the amount advanced, typically £795 and will depend on your circumstances. For non-conforming cases (where case research and processing may be more complex due to adverse credit or unusual circumstances), a fee may be charged of up to 3% of the amount advanced, typically £1,995.

Homeowner Loans: Rates from 8.9% APR variable, but typically 13.9% APR variable. Most customers are likely to receive a lower rate or the same rate as our typical variable rate - learn more about APR. Shire Direct also has a range of non-conforming loan plans with rates up to 19.9% APR. These plans are designed to help those who may have a more difficult credit history, including CCJ's and credit arrears, IVA and bankruptcy problems.
A broker fee of between 0% and 10% of the loan advance may be charged for arranging a secured loan.
All loans subject to status and secured on property.
The actual rate available will depend upon your circumstances. Written quotations on request.

THINK CAREFULLY BEFORE
SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED
IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Adding existing debt to your mortgage will increase the repayment term and overall cost.

Shire Direct and Shire Direct Mortgages are trading styles of Shire Processing Centre Limited which is
Authorised and regulated by the Financial Services Authority in respect of regulated mortgage products and general insurances.
Registered No: 302389. Commercial funding and Secured Loans are not regulated by the FSA.
Licensed Credit Brokers. Consumer Credit Licence Number: 349999.

Shire Processing Centre Limited is registered under the provisions of the Data Protection Act by the Information Commissioners Office: Registration No: Z6795249. Registered in England & Wales. Company number: 2732202. Telephone calls may be recorded for training, monitoring and security purposes. All applicants must be aged 18-years or over.