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Debt Consolidation for Credit Card Debt

Debt is inevitable, but it doesn’t have to last forever. Consolidate high-interest credit card debt with LoanTube.

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Can I use debt consolidation to pay my credit card debt?

Yes, you can certainly use debt consolidation as a debt pay off solution. Debt consolidation loans are typically personal loans that help you organize your debt repayments, especially when you’re dealing with clustered debt. 

Unsecured debt consolidation loans can be an effective solution for your debt pay off plan since they enable you to combine multiple ongoing debts into a single loan. When you borrow an unsecured debt consolidation loan, you use the funds to settle all your existing debts, leaving you with a single loan to repay.

With LoanTube, you can borrow anywhere between £1,000 and £35,000 over 12-84 months, without any collateral security, enough to cover all your existing debts. Whether you’re a homeowner or a tenant, find your way out of the debt cloud with LoanTube. 

How exactly do debt consolidation loans work?

Debt consolidation loans are a way to consolidate multiple debts into a single, comprehensive loan. When you borrow a personal loan for debt consolidation, the lenders assess your application based on many factors – your credit score, income, employment are among some. Once you qualify for this loan, the lenders will directly disburse the amount into your bank account. 

After the transfer goes through, you are free to use the funds to settle all your ongoing debts. Now that you’ve cleared your existing debt with the debt consolidation lump sum, you will only be left with a single loan to repay. Taking this approach makes repayments more convenient and easier to track. 

Can I borrow debt consolidation loans for bad credit?  

Your credit score gives lenders an insight into your financial history – it helps lenders define their risk proposition in lending your money. Credit scores are pivotal to your loan application. A scorecard with a stellar credit history can help you fetch offers with lower interest rates.

On the contrary, a low credit score can make it challenging for you to secure debt consolidation loans at lower interest rates. So, you may be able to apply for a debt consolidation loan with a low credit score. Still, you may not qualify for competitive interest rates on loans.

When is it a good idea to consolidate credit card debt?

Credit card debt can have soaring interest rates – here’s when it’s a good idea to use a debt consolidation loan to settle it: 

  • When it simplifies your finances: Debt consolidation may be a good call when you’re trying to get a more straightforward bird’s eye view of your finances. You get more control over your outgoings and track how much interest you’re paying. 
  • When it makes budgeting easier: Juggling multiple debts at a time can be strenuous. It can be tough to create an efficient budget while dealing with multiple obligations. Debt consolidation can take that burden off your shoulders.
  • When you get potentially lower interest rates: Consolidating your debts under one low-interest loan can help you lower the overall interest that you accrue on that loan. 

Is debt consolidation better than a Debt Management Plan?

Its often claimed that Debt Settlement/Management Plans are the same as obtaining a loan to consolidate debt, but that is not true. Instead of paying credit companies, you will have to pay a debt management firm, which will negotiate a “settlement” with those companies on your behalf. Debt settlement may seem like you’re getting out of paying your debts. You should still be aware that this can severely affect your credit report and score. Your credit report may reflect late/missed payments. Further, your report will show that you did not fully pay the companies if you settled debts. Your credit score will probably drop; as a result, making it more challenging to get credit approval shortly. 

Are there other ways to consolidate credit card debt?

 

Debt Consolidation Loans 

0% Balance Transfer Card

Debt Management/Settlement Plan

Basics 

  Consolidate your debts with unsecured personal loans.

Balance transfer cards allow you to transfer the balance on your ongoing debts to one single card. 

Debt Settlement or Management involves hiring a third-party firm to ‘negotiate’ your settlement with your creditors. 

How does it work?

You borrow a debt consolidation loan to repay a combined balance of all your ongoing debts. After that payment, you will only have one debt consolidation loan left to repay.

Once you get approved for a 0% interest balance transfer card, you choose balances you wish to transfer – preferably high-interest credit card debts. After transferring the balance, you’ll only have to repay towards one card.  

In debt settlement, you usually reach out to a debt management firm that negotiates a settlement with all the debtors on your behalf. So, you will have to start paying the debt settlement firm you hire rather than paying your creditors.  

Debt range (on average)

Up to £25,000

Up to £5,000

Normally between £10,000 and £100,000. 

Interest charges 

With a stellar credit history, you may get a low-interest debt consolidation loan. You will pay less interest on a loan with a higher credit score. So, you may not qualify for competitive interest rates with low credit.

0% interest for an introductory or grace period. However, interest rates can soar at the end of the grace period, which usually lasts up to 18 months.

Debt settlement entails a settlement negotiation, so the average interest negotiated with each creditor is roughly between 0-10%

Repayment cycle 

  Repayment through affordable monthly instalments. The shorter the repayment period, the lower interest you will accrue. 

The aim should be to repay the balance within the grace period. Otherwise, you’ll accrue a high-interest rate, as per the credit card’s original cost. If you miss your repayments, it may trigger penalty rates and nullify your grace period. 

You repay the debt settlement firm a fee for their service. The repayment cycle depends on how much debt remains after the negotiation.. 

What to consider?

While a long-term loan could considerably reduce your financial burden each month, you will accrue a greater interest in the long run. So, weigh the pros and cons accordingly. 

0% balance transfer cards often have a 3-5% transfer fee. Check the transfer fee on your card – if you’re carrying a debt of more than £5,000, you’ll have to pay a sizeable transfer fee. Plus, the grace period only lasts from 6-18 months, after which you will be moving to the initial interest. 

In many cases, debt settlement is the best way to get out of debt. Still, you have to remember firms encourage you to miss repayments until your debt gets settled with all creditors. These missed payments can drastically lower your credit score, affecting your chances of securing any credit shortly. Thus, it may not be a healthy way to cope with your debt.  

Debt consolidation for credit card debt: what to consider?

Credit card debt can take a toll on your finances. But unsecured debt consolidation loans have repayment implications too. Here’s what you should consider before opting for one:

Is this a suitable loan amount for me? It’s essential to evaluate your ability to repay the loan before applying. Borrow an amount you can afford to repay within the agreed-upon repayment period.

 Will I be able to commit to the loan term? 

Loans with longer repayment terms require more outstanding commitment. A long-term loan can lower your monthly instalments, but it can also increase the overall interest you pay for the loan. Evaluate your financial circumstances carefully to figure out a convenient loan term. 

 What happens if I miss a repayment?

Missing a payment can cost you a few points off your credit score. A series of missed payments could result in a default, often followed by a County Court Judgment (CCJ), which could severely impact your credit score. Therefore, you have to stay on top of your repayments and maintain a healthy relationship with credit.

 Do I need a contingency plan?

When you have a plan for handling emergencies, you’ll be better able to keep up with your repayments. Consider your options carefully before obtaining debt consolidation. Your debt consolidation loan may not be worthwhile if its interest rate is more significant than all of your debts combined. 

How much can I borrow with debt consolidation loan?

Crunching numbers was never this easy – check your affordability at the click of a button. Secure your future by making an informed financial decision.

Debt Consolidation loan calculator

What is the purpose of your loan ?
How much do you wish to borrow?
What repayment term would you like to choose ?

Representative Example

Loan Amount

£2,600

Loan Term

3 Years

Total repayment

£4,559.66

Monthly repayment

£126.66

RAPR

49.7%

Interest

41% p.a (fixed)

*The rate you get will depend on your individual, financial circumstances. Late repayment can cause you serious money problems. For more information, go to MONEYADVICESERVICE.ORG.UK.

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FAQ'S

How much is credit card debt too much?

Debt is a part of every financial lifecycle. While debt itself isn’t bad, how responsibly you handle it defines its impact on your finances. Even if you’ve combatted multiple debts before, you have to ask yourself where to draw the line – just how much debt is too much? 

 

  • You’re borrowing money to settle your debts: Are you at a stage where your income doesn’t suffice, and you feel the need to borrow more money to pay your debts? If this sounds familiar, you must take some time to understand your finances and reconsider your spending habits – start with a budget! 

 

  • You’ve run out of savings: If your savings have already been exhausted from paying off debt, you must correct the pitfalls in your personal finance management. You should ideally always have a savings pot to fall back on in the event of an unprecedented emergency. So, as soon as you realise the situation’s gravity, it may be wise to start planning your way out of the debt spiral.

 

  • Talking about money gives you anxiety: A pile of unpaid debt can leave you perplexed and anxious. Sometimes people reach a point where they live in denial about their financial problems, which can have long-term adverse effects on your mental and financial health. The key to solving your problems is addressing them head-on. 
What happens if I don’t settle my credit card debt?

Not paying off your credit card debt can leave a negative footprint on your credit file, and missed payments can strip your credit score off of quite a few points. On the other hand, a default doesn’t only lower your credit score by up to 350 points, but lenders can sometimes serve you with a CCJ. A CCJ stays on your credit file for up to 6 years, hampering your chances of securing credit shortly. It may be challenging to meet your financial milestones if you rely on credit.

Does LoanTube charge an arrangement fee on Debt Consolidation?

LoanTube does not charge an upfront fee for your loan. With zero upfront fees, we’re passionate about helping you find the right loan.

Should I close the credit accounts that I’ve paid off?

Many people tackling clustered debt may be under the impression that closing your old credit accounts improves your credit score. However, this isn’t true. Even closing a paid-off credit account can lower your credit limit and, consequently, your credit utilisation ratio.

 

Credit utilisation measures the ratio of the credit you utilise from the total credit available to you (your credit limit). Ideally, your credit utilisation ratio should be 30% – meaning that you should be using no more than 30% of your credit limit. Now, when you close a credit account, your credit limit drops, bringing about a rise in this ratio. An increase in the credit utilisation ratio results in a drop in the credit score, sometimes a rather significant one.

How will debt consolidation loans affect my credit score?

Like any other credit, debt consolidation loans leave a footprint on your credit report. Whether this footprint is positive or negative depends on how responsibly you utilise your loan. Your credit score will improve overtime as you simplify and untangle your repayments and pay down your debt consolidation loan. 

Adhering to your repayment schedule is crucial for a debt consolidation loan to work effectively. So, ensure that you make timely payments towards the loan. Additionally, closing your old could also reduce your credit score. 

Even though paying off your debt is good practice, closing a paid-off account could lower your credit limit, thus increasing your credit utilisation ratio. An increase in the credit utilisation ratio can considerably decrease your credit score. 

There will be a slight drop in your credit score when you apply for a debt consolidation loan owing to a hard credit enquiry. However, its effects may be insignificant and will diminish over time with a series of sincere repayments.

What is the maximum amount that I can borrow through LoanTube?

You can borrow up to £35,000 over 3-7 years with LoanTube. 

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