We get to hear this question a lot. Individuals with numerous cards, personal loans and the like who are having trouble paying all their debts are looking for a simpler and easier solution to their debts. While the answer largely depends on the appropriate debt solution for the individual, it is important to remember that different types of debts may need a different approach.
All debts in one
There are a number of ways in which it may be possible to put all of your debts into a single loan facility, however it is not always finacially advantageous to do so:
Single Secured Loan
Individuals with their credit history and employment intact may well benefit from consolidating numerous unsecured debts into their mortgage or a car loan. To qualify for such consolidation, your asset must have sufficient equity in it. For example, borrowers whose mortgage is already 85% of the value of their home will not be able to budle other debts into it – the equity is simply not there. Individuals who find that such a consolidation is not possible or not financially advantageous will need to consider other options.
Debt or Insolvency Agreement
Depending on your circumstances it may be possible to enter into a Debt Agreement with yoru unsecured Creditors whereby your debt repayments are reduced allowing for a faster and easier repayment of all debts in full. Borrowers who are home owners can do so without affecting their home or mortgage.
Bankruptcy is an all-encompassing debt solution for the individual who is insolvent and is unable to repay their current debts. Entering bankruptcy can have a number of personal and professional implications for the individual and it is best to leave this as your “last resort debt solution”.
Treating secured and unsecured debts separately
If you have a mortgage, a car loan as well as some unsecured debts you may find it more advantagoeus to treat secured debt separately from unsecured debt. The main reason behind this decision tends ti be the cost of secured debt.
Borrowers who have taken on a mortgage or a car loan loan when their credit history was healthy and their finances were in order, probably managed to secure a very competative intereste rate. If they now look to refinance those loans in order to consolidate other debt into the figure, they may find that the interest rate on their larger loan will now be far higher given the possible late payments or defaults seen on their credit report. Therefore while they may be able to save money on the unsecured component of their debts, the secured component will be more expensive. Unfortunately this will be unsuitable for most people as secured debts tend to be larger in amount that unsecured debts. Once you do your mathematics you will be able to see that saving 10% on unsecured debts while needing to pay an extra 5% on your secured debts will probably not be worthwhile. However this can only be decided on your specific numbers and situation.
Therefore if your credit history is now not as good as it used to be when you took on your large secured loans – leave these loans in place. Providing you continue paying these as set they will not be affected by any deals you make on your unsecured debts.
You can simply apply to renegotiate repayments on your unsecured debts, enter an informal debt agreement or a formal debt agreement on unsecured debts without affecting the ost or stability of yoru secured loans.