It’s time to rethink debt consolidation

“Consolidating debt in this way can be a vital lifeline for borrowers, reducing their monthly interest payments and giving them greater control over their monthly finances.”

To fight against this inflation, the Bank of England used its main tool: interest rates. The latest increase in the prime bank rate from 0.75% to 1% means rates are now at their highest level since 2009.

Each item that becomes more expensive puts additional pressure on the pockets of strained consumers. This is taking place against a backdrop where many are already feeling the pressure as we emerge from the economic devastation of the Covid pandemic.

Research from Pepper Money’s latest Adverse Credit Study found that 81% of people with adverse credit said a £100 increase in their bills would have a significant impact on their finances.

On top of that, almost a third (32%) of people with bad credit said they had increased their level of debt over the past 12 months and, with the rising cost of borrowing, the cost of service of this debt will only increase. upper.

Unfortunately, there is not much people can do about the cost of essentials, while there are steps they can take when it comes to managing their monthly debt servicing expenses, which is likely to become more expensive due to recent interest rate hikes. .

One way to do this is to pay down unsecured debt and revolving credit by increasing secured borrowing, either through a mortgage, new advance, or second mortgage.

There are always considerations for converting unsecured debt to secured debt and potentially increasing the length of time the debt is repaid. But under the right circumstances, consolidating debt in this way can be a vital lifeline for borrowers, lowering their monthly interest payments and giving them greater control over their monthly finances.

Consolidating revolving credit in this way not only allows customers to reduce their monthly expenses, but can also give them a realistic path to debt relief, as the balance will eventually be paid off if all payments are made.

For clients who choose to consolidate their debt, how they do so will depend on their own circumstances and needs. When speed and flexibility are important considerations, a second mortgage can be a good option, with approvals available within 24 hours and loans up to 80% LTV.

There are so many potential benefits of debt consolidation for so many people, especially in today’s economic environment, yet the concept of debt consolidation remains shrouded in negativity, seen as a desperate measure taken by desperate people.

I firmly believe that this is an erroneous and very damaging misconception. In fact, rather than being a desperate step, I think consolidating debt in this way can be a very smart and proactive move to take control of spending and pay off outstanding balances. After all, reducing the cost of borrowing is a smart financial decision, and reducing monthly expenses to improve cash flow can have a very positive impact on the lifestyle of many families.

So, I think it’s time to rethink debt consolidation. Maybe we should even rename it, something like “proactive debt management”. Whatever we call it, however, there is no doubt that brokers have a great opportunity to make a big difference in the lives of their clients right now. Consolidating existing debt could help so many people cope with the rising cost of living. It’s time to make them aware of their options.

Nancy I. Romero