For Paying Debts, Consolidation Loans One of the Best Options

Alex Parsons Alex Parsons | Secured Loan Expert

Just about every adult carries some level of debt from month to month. Whether that debt is related to credit cards, personal loans, overdraft protection or revolving lines of store credit, debt is a normal part of modern financial life. Being way in over your head with too much debt is also relatively common, though it's not wise. That's why so many people are looking to pay down their debts as quickly as they can. For paying debts, consolidation loans are one solution alongside several others.

Before we get to the various solutions for paying down debt, we want to make it clear exactly what kind of debt we're talking about. A first mortgage and moderate credit card debt are not considered serious enough to be a problem. It's not until you start adding to your mortgage and credit cards that you start having trouble. People who should seriously consider paying down their debt through a consolidation loan are those struggling under the weight of:

  • multiple personal loans
  • credit card debt in excess of £5,000
  • revolving store credit
  • multiple, expensive car loans
  • ongoing payday loans.

It should be understood that the average credit report includes information relating to every outstanding debt a consumer has. Therefore, one of the reasons for paying down expensive debt is to solidify one's credit rating.

Debt Consolidation Loans

The secured loan product known as a debt consolidation loan is one of the most popular options for people looking to pay off high-interest debts. Consolidation loans take advantage of the equity borrowers have in property to borrow significant amounts of money with lower rates and better terms. The money raised from a secured loan pays off high-interest credit cards and other debts, leaving the borrower with a single monthly payment that should be less expensive than servicing all the other debts individually.

The biggest advantage of paying debts with consolidation loans is one of volume. In other words, it is possible to borrow tens of thousands of pounds as long as you have the equity to support it. You could, in theory, pay off all your high-interest debt with this one kind of loan. Doing so would instantly boost your financial position.

Balance Transfer Credit Cards

Another option is one of balance transfer credit cards. However, this option is not ideal for a couple of reasons. First, it is limited to debts of under £5,000. If your debt exceeds that amount, getting another credit card is not going to help you. Second, balance transfer credit cards have an inherent temptation built in: the temptation to spend more money using the new card. A lot of people who go into a debt reduction strategy with a balance transfer card find themselves in a worse position for it.

Continuing As-Is

There are times when a financial adviser might suggest a consumer continue as-is without trying to retire current debt loads as quickly as possible. This strategy might be recommended as a way to encourage the borrower to take any extra money that would otherwise be put into debt consolidation and invest it instead, with the goal of earning a return that exceeds the amount that would have been saved through debt consolidation.

Again, this strategy is not recommended for the average consumer as it tends to only pay off for people who are of a higher net worth. The average consumer being overwhelmed by tens of thousands of pounds in high-interest debt would be better off with a consolidation loan.

Instantly compare 950+ of the UK's best secured loans

Rates from as low as 3.75%