Debt consolidation and debt advice from the debt advisers at E-insolvency. E-insolvency are the UK's specialists in debt consolidation, debt management, IVAs and debt advice.

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More and more people are opting for debt consolidation to place all their debts in one place, and its easy to see why. By using debt consolidation schemes your credit card, loan and other debts you can be  converted into one manageable monthly amount.

What is debt consolidation 

Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as security, most commonly a house. In this case, a mortgage is secured against the house. The security of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the repossession of the property or the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

When is debt consolidation best

Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest.

Debt consolidation concerns

In recent years, reports in the media have raised concerns about the use of consolidation loans. The worry is that many people are tempted to consolidate unsecured debt into secured debt, usually secured against their home.

Although the monthly payments can often be lower, the total amount repaid is often significantly higher due to the long period of the loan.

Debt consolidation sometimes only treats the symptoms of debt and does not address the root problem. In some circumstances, snowballing debt may be a better solution.

There are other alternatives to a debt consolidation such as:

IVA (Individual Voluntary Arrangement) to clear debt

If you have enough money left over after paying your priority creditors and essential expenses, you may be able to arrange an Individual Voluntary Arrangement (IVA).

An IVA is a legal agreement with creditors (usually non-priority creditors) to repay your debts. This could either be in part or in full. The arrangement is negotiated, written up and checked regularly by an independent solicitor or accountant called an Insolvency Practitioner. Not all the creditors have to agree to an IVA as long as the creditors to whom you owe 75% of your debt agree.

Debt Managment Plan to clear debt

If you have enough money left over after paying your priority creditors and essential expenses, you may be able to arrange a debt management plan.

A debt management plan is an arrangement with your creditors to pay back the debt by regular instalments. Instead of you speaking to your creditors yourself to arrange the plan, a Debt Management Company (DMC) does it for you. Usually you have to pay for this service although there are some DMCs who will do this for free.

Bankruptcy to clear debt

If you have a debt problem, you might have a number of options for sorting it out. One of these might be bankruptcy.
Bankruptcy is a court order that you can apply for if you are in debt. Once you have been made bankrupt, you don't have to deal with the people you owe money to (your creditors). An official called the Official Receiver takes control of your money and property, and deals with your creditors.
Remember, bankruptcy might not be your only option and it might not be the best one for you.
Remember also that someone you owe money to could make you bankrupt even if you don't want this.

Protected Trust Deed to clear debt in Scotland

A trust deed is a formal arrangement with your creditors, used in Scotland where a debtor grants a deed in favour of the trustee which transfers their assets to
the trustee for the benefit of creditors.

Provided certain conditions are met, the Trust Deed may be registered as "protected", thereby preventing creditors from petitioning for the debtor's sequestration or taking any other steps to recover debts due to them. Financial and personal circumstances vary, so the consequences of signing a Trust Deed will be different for each individual or partnership.

Remortgage to clear debt

If you have enough money left over after paying your priority creditors and your essential expenses, you could think about taking out a loan to pay off your non-priority debts. This is called a consolidation loan. You can use a consolidation loan to pay off things like credit card debts and loans.