Personal Debt Consolidation

This is the single most important thing on this page, and it is the thing most consolidation advertising leaves out. Rolling a short-term unsecured debt into a thirty-year mortgage lowers the monthly repayment. It can also increase the total interest you pay over the full term, even though the rate is lower.

The reason is time. A card balance paid off over three years accrues interest for three years. The same balance sitting inside a thirty-year mortgage accrues interest for thirty years. A much lower rate applied over a much longer period can still add up to more.

So the honest position is this. If lowering the monthly repayment is what stops you falling further behind, take the lower repayment and say so plainly. If you can afford more, structure the loan so you pay more, and do not let a thirty-year term quietly do the deciding.

There are two routes, and which one is open to you generally comes down to whether you own property with usable equity.

Secured, against a property

The debt is absorbed into a mortgage or a new loan secured by the home or an investment property. The rate is lower, the amount available is larger, and the term is longer. The cost is real: unsecured debt becomes secured debt, and the property now stands behind money that used to be unsecured. That is a serious change and it deserves a serious conversation.

Unsecured, on income alone

A personal loan pays out the balances, with no property involved. The rate sits above a mortgage rate but usually well below a credit card rate, and the term is short enough that the debt has an actual end date. Amounts are smaller and the assessment leans harder on income stability and credit history.

The failure mode for consolidation is not the loan. It is the cards filling up again over the following eighteen months, leaving the household with the consolidated loan and the original debt. The fix is mechanical.

1. 01Close the accounts at settlement rather than reducing the limits. A zero balance with a live limit is an invitation, and lenders assess the limit, not the balance.
2. 02Cancel the buy-now-pay-later accounts, not just the current plans.
3. 03Set the repayment to direct debit on the day after pay lands, not on the last day of the month.
4. 04If the loan is split, set the extra repayment on the split now, while the intention is fresh.
5. 05Keep one card, with a limit you could clear in a month, for genuine emergencies. Or keep none.
6. 06Build a small buffer before you increase spending. The reason the cards filled the first time was usually an unfunded surprise, not extravagance.

You are not the first, and you will be alright.

Consolidation applications are assessed on the same fundamentals as any other loan, with one addition: the lender wants to see that the new loan actually resolves the position rather than adding to it.

• Income, and how stable and provable it is
• Living expenses, benchmarked and verified against your statements
• Existing commitments, assessed on credit limits rather than current balances
• Repayment conduct over recent months, particularly missed payments and dishonours
• Credit file, including enquiries, defaults and any judgments
• For secured lending, the value of the property and the resulting loan-to-value ratio
• Whether every debt being consolidated is being paid out, not just some of them

Serviceability

The lender's own test of whether you can afford the repayment. It is more conservative than a household budget, and it is where most declines are actually decided.

Loan split

A separate portion inside one loan, with its own term and its own repayment. It is how you take the lower rate without buying decades of interest.

Payout figure

The exact amount needed to close a debt on a given date, including interest to that date and any early repayment cost. It is usually higher than the statement balance.

Credit limit

What you could draw, not what you owe. Lenders assess the limit, which is why an unused card still reduces what you can borrow.

Credit enquiry

The record left on your file each time you apply. A cluster of them in a short period reads as distress to the next assessor.

Hardship notice

A request to your existing lender to vary repayments while you are struggling. It is a right, it costs nothing, and it sits alongside anything a broker arranges.

Send the whole picture, including the debts you would rather not list. An assessor who finds an undisclosed account in the statements will decline a file that would otherwise have been approved with the account included.

1. 01

   The honest inventory

   Every debt, every limit, every rate, every repayment. We build the real total, which is often larger than the one people carry in their heads.

2. 02

   The comparison

   What you are paying now, monthly and over the full term, against what each available structure would cost. Indicative only, but built on your actual numbers.

3. 03

   The recommendation, with the caveats stated

   Which structure suits you, why, and what the trade-off is. If consolidation is not the right answer for you, this is where we say it.

4. 04

   Application to one lender

   Documents prepared once, submitted to the lender on the panel most likely to approve your file as it actually is.

5. 05

   Approval, payouts and settlement

   We obtain payout figures for each debt and coordinate so every account is cleared at settlement rather than left with a residual balance and a late fee.

6. 06

   Closing accounts and setting the rhythm

   Accounts closed, direct debit set, and where a split has been used, the extra repayment set up on the day the loan funds.

Consolidation is a good tool for a cash flow problem. It is a poor tool for a solvency problem, and a worse one for a spending problem that has not been addressed.

• If the total debt is beyond what any realistic income could service, more borrowing only adds a creditor.
• If the debts will simply be rebuilt because nothing about the household's spending has changed.
• If putting the family home behind unsecured debt is not a risk you should be taking at this stage of life.
• If the exit costs on existing facilities outweigh the benefit for a small balance.
• If a formal option would genuinely produce a better outcome for you than another loan.