Can Debt Consolidation Secured Loans Repair Credit Score?

Melinda (Milli) Haine Melinda (Milli) Haine | Loan Underwriter

Do you have poor credit? Is a less-than-favourable credit rating preventing you from managing your finances the way you want to? If you answered 'yes' to either question, we might be able to help. Secured Loan Expert can help you compare and obtain debt consolidation secured loans that you can use to revive your credit rating and lower your monthly payments.

Debt consolidation is a tool consumers use to bring high interest debt under control. Doing so makes it easier to maintain the monthly budget so that bills can be paid on time. Over the long run, this improves credit by demonstrating consumer responsibility and reducing the total amount owed.

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Having said that, a debt consolidation secured loan could come back to haunt you if you fail to control your spending. To explain what we mean, let us use the example of credit card debt. This is a good example given the fact that many consumers use consolidation loans to pay off credit cards.

Right and Wrong Way

The right way to apply debt consolidation to credit cards is to combine all of your credit card accounts into a single, secured loan. As soon as the money from the secured loan is deposited into a bank account, the consumer immediately pays off all his or her outstanding credit card debt. He or she then cancels those credit cards or creates some means of control so that they are not abused again in the future.

The wrong way to do this is to obtain a secured loan without changing the way credit cards are used. It is far too tempting to see a zero balance on a credit card and be motivated to start spending recklessly again. This could lead to real trouble. Without changing your spending habits, you could find yourself running up thousands of pounds in new credit card debt that has to be repaid alongside the debt consolidation loan you took out earlier.

The fact that a consumer is looking at a debt consolidation loan suggests a lack of spending controls. In order to prevent yourself from getting into deeper trouble, it is imperative that you solve those spending habit problems before you take out another loan. Why? Continue reading to find out.

Your Home as Collateral

The typical debt consolidation loan issued in the UK is based on the equity in the borrower's home. The borrower secures the loan by offering his or her home as collateral for the debt. Should he or she default on the loan, the lender can repossess and sell the property to recover the debt. This is why it is so important to change your spending habits if you are planning to get a secured loan.

Having said all that, consolidating your high interest debts with a secured loan offers many advantages. Obtaining a secured loan usually results in:

  • a better interest rate than you're paying now
  • a single monthly payment lower than that you're currently paying
  • easy repayment terms that can fit into any budget
  • a favourable influence on your credit history after paying off high interest debt.

As you can see, the benefits of debt consolidation with a secured loan are significant. With the proper financial discipline in place, the benefits far outweigh the risks of secured borrowing. You can use a secured loan to revive poor credit simply by paying off your old debts and being faithful to making your new loan payments on time.

To find out how much you are eligible to borrow, calculate the equity in your home and then compare it to the loan-to-value (LTV) ratios offered by lenders. A few simple calculations will help you figure out a good estimate of your borrowing power.

If you are ready to get control of your debt problems, our team of Secured Loan Experts can help you compare and obtain debt consolidation secured loans that could drastically change your financial future. Let us help you make the most of the equity in your home through a secured loan. Our Help, advice and expertise are freely available for you to utilise with no obligation on your part. If you do decide to go ahead our experts will advise you fully of any costs before you make a commitment and use their knowledge of individual lenders to ensure your application is presented to your chosen lender in the most favourable manner. 

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