Debt Consolidation

Debt Consolidation

Debt consolidation is a way to combine multiple debts into one manageable monthly repayment, helping you simplify your finances and regain control.

At NDH Financial, we're debt solution experts with our own licensed Insolvency Practitioner on staff. While we offer guidance on various debt management options, our primary focus is helping people through Individual Voluntary Arrangements (IVAs).

Many people exploring debt consolidation discover that an IVA offers better protection and outcomes - especially if you owe £7,000 or more, or struggle to qualify for traditional consolidation loans.

Different Ways to Consolidate Debt in the UK

Debt consolidation typically means taking out a new loan to pay off multiple existing debts. Instead of managing several credit cards, personal loans, and overdrafts, you make one monthly payment to a single lender.

Individual Voluntary Arrangements (IVAs)

A formal, legally binding agreement supervised by a licensed Insolvency Practitioner. An IVA freezes all interest and charges immediately, provides complete legal protection from creditors, and writes off any remaining debt after 5-6 years. You make one affordable monthly payment based on what you can genuinely afford, with no risk to your home.

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Debt Consolidation Loans

Taking out a new loan to pay off multiple debts leaves you with one monthly payment to manage. These loans may require a good credit score, and some lenders ask you to secure the loan against your home, which puts your property at risk if you fall behind on payments. While the monthly payment might be lower, you could end up paying more interest overall if the loan term is extended. It's worth comparing the total amount you'll repay versus what you currently owe.

Debt Management Plans (DMPs)

An informal arrangement where you make reduced monthly payments to your creditors through a third-party provider. While this simplifies payments, it offers no legal protection—creditors can still contact you, take legal action, and continue adding interest. There's also no guarantee all creditors will agree to the plan.

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Balance Transfer Credit Cards

Moving several credit card balances onto a single card, often with a 0% interest promotional period. This option typically requires a good credit rating, and once the promotional period ends, interest rates can be high. You'll also need to be disciplined about not using the old cards again. Balance transfer fees (usually 0-3.5% of the amount transferred) can eat into your savings, and if you don't clear the balance before the promotional rate ends, you could face steep interest charges.

Debt Arrangement Scheme (DAS)

Available only in Scotland, a DAS lets you repay your debts through a Debt Payment Programme (DPP). You make one affordable monthly payment, which is distributed to your creditors. All interest and charges are frozen once the plan is approved, and creditors can’t take legal action against you while you’re on it. It’s a government-backed scheme managed by an approved money adviser.

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Remortgaging or Secured Loans

Using your home as security to borrow money and pay off unsecured debts. While this can reduce monthly payments, it converts unsecured debt into secured debt - meaning you risk losing your home if you can't keep up with repayments. You're also likely to pay more interest over the longer loan term. Extending your mortgage term to consolidate debts means you could still be paying off credit card debt 20 or 30 years from now, long after the items you purchased are gone.

Debt happens. Could an IVA Be Your Way Forward?

If you're considering debt consolidation but owe £7,000 or more, an IVA could offer better protection and a clearer path to debt freedom. Unlike traditional debt consolidation, an IVA doesn't require a good credit score, won't put your home at risk, and can write off a significant portion of your debt.

You might be eligible for an IVA if you:

  • Owe £7,000 or more in unsecured debt
  • Have regular income (employment, self-employment, pension)
  • Can afford monthly payments to your creditors
  • Have at least two creditors
  • Want legal protection & a fixed end date
Check if you qualify
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How Does Debt Consolidation Work?

The process typically involves:

  1. Assessment - A lender reviews your debts, income, and credit score
  2. Application - You apply for a consolidation loan or product
  3. Approval - If approved, the lender pays off your existing creditors
  4. Repayment - You make one monthly payment to the new lender

The goal is simplicity: one payment instead of many. However, this often comes with extended repayment terms, meaning you could pay more interest overall despite lower monthly payments.

What Debts Can Be Consolidated?

Debt consolidation typically covers unsecured debts. Priority debts like mortgage, rent, and utilities need separate attention, as they can lead to serious consequences such as eviction or loss of essential services.

Debts You CAN Usually Consolidate

Debts You CANNOT Consolidate:

  • Mortgage arrears
  • Council tax arrears
  • Gas and electricity bills
  • Court fines and magistrate fines
  • Child maintenance arrears
  • Student loans
  • Existing secured loans

Advantages and Disadvantages of Debt Consolidation Loans

Pros Cons
One Simple Payment - Easier to manage than multiple debts Requires Good Credit - May not qualify if credit score is damaged
Potentially Lower Interest - If you qualify for competitive rates Risk to Your Home - Secured loans put your property at risk
Fixed Repayment Term - Know when you'll be debt-free Longer Repayment Period - Could pay more interest overall
Reduced Monthly Payment - Spread over a longer term Doesn't Reduce Debt - You still owe the full amount
Stops Multiple Creditor Contact - Once debts are paid off Application Fees - Setup costs and early repayment charges
Temptation to Reuse Credit - Risk of accumulating more debt

Who Qualifies for Debt Consolidation in the UK?

Debt consolidation isn't available to everyone. Lenders typically require:

  • Good to excellent credit score
  • Stable income and employment
  • Sufficient equity (for secured loans)
  • Debt-to-income ratio within acceptable limits
  • UK residency

If missed payments or defaults have already damaged your credit score, you may struggle to get approved - or only qualify for high-interest products that don't actually save you money.

What if they can't consolidate my debt?

If you've been turned down for debt consolidation or the interest rates offered are too high, don't lose hope. Some alternative debt solutions don't require a good credit score or security against your home. An IVA could provide the fresh start you need, with an affordable way to pay off your debt on what you can genuinely afford - not what lenders demand.

Apply for an IVA today

Get in touch with NDH Financial for a free consultation about your debts to see if an IVA could help you.

Call us on 0800 002 9051 or apply below.

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An IVA may not be suitable in all circumstances.  Fees apply. Your credit rating may be affected

Alternatives to a Debt Consolidation Loan

Both help you manage multiple debts, but they work very differently:

Debt Consolidation IVA
Legal Status Standard loan/credit agreement Formal & legally binding
Creditor protection No protection (new creditor only) No contact or legal action
Interest & charges Depends on new loan terms Frozen from approval
Duration Varies (often 5-10+ years) Fixed 5-6 years
Debt write-off None - pay everything back plus interest Remaining debt written off*
Credit requirements Good credit score usually needed No credit check required
Legal action risk New creditor can pursue if you default You're legally protected
Minimum debt Varies by lender Typically £7,000+
Security needed Often requires home as security No security required
Affordability basis Lender's criteria Based on your actual income & expenses
Credit impact Depends on product 6 years

Both affect your credit rating - but only an IVA offers legal protection and debt write-off.

Consolidating Your Debt FAQs

Debt consolidation can work if you have good credit, can secure low interest rates, and are disciplined about not accumulating new debt. However, it's not suitable if your credit is damaged, you'd need to use your home as security, or your debts are too large to realistically repay in full. Many people find formal solutions like IVAs more effective because payments are based on affordability, and there's a clear end date with debt write-off.

Taking out a debt consolidation loan will appear on your credit file. Initially, there may be a slight dip from the credit check and new account opening. If you miss payments on the consolidation loan, this will significantly damage your credit. Successfully repaying shows responsible credit use, but this takes time. An IVA also affects credit for 6 years, but offers legal protection and debt write-off that consolidation doesn't.

Some lenders offer guarantor loans for debt consolidation, where someone else agrees to make payments if you can't. This shifts the risk to your guarantor - typically a family member or friend - which can strain relationships if you struggle with repayments. Most mainstream debt consolidation loans don't require a guarantor if you have good credit, but you may need one if your credit is poor. IVAs don't require guarantors.

Eligibility will depend on the lender, but most need you to have a good to excellent credit score, stable employment and income, a manageable debt-to-income ratio, and UK residency. If you're applying for a secured loan, you'll need sufficient equity in your home. If your credit has been damaged by missed payments or defaults, you may not qualify or only be offered high-interest products that don't provide real savings.

Debt consolidation loans for bad credit exist, but are limited and often come with very high interest rates that may not save you money compared to your existing debts. Some lenders specialise in bad credit loans, but these typically require security against your home, putting your property at risk. An IVA doesn't require a credit check and bases payments on affordability, making it accessible regardless of credit history.