Finance Q&A's
Debt Consolidation
Consolidating numerous debts into just one pot can help save time, money and stress. However, it’s not entirely without its risks, as Lakeside Financial Adviser James Foster explains…
What is debt consolidation, and how does it work?
J: Consolidating debt is the process of switching some or all of your existing debt - incurred through loans, overdrafts and credit/store cards etc. - into one new loan. This means you will owe money to fewer lenders and have fewer direct debits going out each month. Often for clients, this is a case of extending their mortgage borrowing to consolidate their unsecured debts.
In what ways can this finance option help those in debt?
J: Mortgage borrowing tends to carry lower interest rates than unsecured borrowing and often has longer repayment terms available. This will generally result in lower repayments each month, making your finances more manageable and helping to reduce stress. Having more disposable income each month can also provide the opportunity to reassess your wider financial planning, freeing up the budget to help you protect your borrowing or your family or to save for your future.
And are there any risks to bear in mind?
J: While consolidating unsecured debt into a mortgage can result in lower monthly repayments with lower interest rates, if the borrowing is taken over a more extended period, you could end up paying more interest on the debt overall. Also, it’s important to remember that when securing debt against your home, the property is at risk if you don’t keep up with your repayments. It is important to take advice on these types of transactions as we can tailor your solution, so they are suitable for you.
How can you help clients wanting to explore debt consolidation, and are there any alternatives to consider?
J: It can be confusing when weighing up debt consolidation options, but meeting with a financial adviser can help clear up that confusion and address any concerns. We would look at the client’s individual situation and what they would like to achieve and then put together a financial plan to help get them there.
There may be alternative options, such as taking out a personal loan to pay off outstanding credit card debts, but we would explore that as part of our research and make a recommendation to the client of the best course of action to take.
For further information on debt consolidation, please contact: admin@lakesidefs.co.uk
