"Consolidating debts in this way can provide a vital lifeline for borrowers, reducing their monthly interest payments and giving them greater control over their monthly finances."
To combat this inflation, the Bank of England has wielded its main tool – interest rates. The latest increase in Bank Base Rate from 0.75% to 1% means that rates are now at their highest since 2009.
Every item that becomes more expensive puts further strain on the pockets of stretched consumers. This is set against a backdrop where many are already feeling the strain as we emerge from the economic devastation of the Covid pandemic.
Research from the latest Pepper Money Adverse Credit Study found that 81% of people with adverse credit said a £100 increase in their bills would significantly impact their finances.
On top of this, nearly a third (32%) of people with adverse credit said they had increased their level of debt in the last 12 months and, with the cost of borrowing increasing, the cost of servicing this debt is only going to get higher.
Unfortunately, there’s little people can do about the cost of essential commodities, whereas there are actions they can take when it comes to managing their monthly outgoings on servicing their debt, which is likely to become more expensive of the back of these latest interest rate rises.
One way of doing this is by paying off unsecured debt and revolving credit by increasing secured borrowing, either through a remortgage, further advance or second charge mortgage.
There are always considerations in converting unsecured debt to secured debt and potentially increasing the term over which the debt is repaid. But in the right circumstances, consolidating debts in this way can provide a vital lifeline for borrowers, reducing their monthly interest payments and giving them greater control over their monthly finances.
Consolidating revolving credit in this way not only provides a way for customers to lower their monthly outgoings – it can also give them a realistic route to becoming debt free as the balance will eventually be paid off if all the payments are made.
For customers who choose to consolidate debts, the way in which they do so will be based on their own circumstances and requirements. Where speed and flexibility are important considerations, a second charge mortgage can prove a good option, with approvals available within 24 hours, and lending up to 80% LTV.
There are so many potential benefits from debt consolidation for so many people, particularly in the current economic environment, but the concept of debt consolidation remains shrouded with negativity, perceived as a desperate step taken by desperate people.
I fiercely believe this is an incorrect and very damaging misconception. In fact, rather than being a desperate step, I think consolidating debts in this way can be a very smart, proactive move to take control of outgoings and pay down outstanding balances. After all, reducing the cost of borrowing is a smart financial move, and reducing monthly outgoings to improve cashflow 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, to something like ‘proactive debt management’. Whatever we call it, however, there is little doubt that brokers have a big opportunity to make a big difference to the lives of their customers at the moment. Consolidating existing debts could help so many people cope with the rising cost of living. It’s time to make them aware of their options.
