Debt Reorganisation

Contents

Overview

Debt reorganisation for personal debt involves combining multiple debts into a single loan with a lower interest rate and more manageable repayment terms. 


It can also involve taking out a secured loan on property or land to release equity. The equity released would then be used to either pay off personal debt in full or to make a full and final settlement offer.

What is Debt Reorganisation?

How it works

You apply to a lender for a loan to reorganise, or clear your debts. These loans are often advertised as ‘consolidation loans’. This means you swap some or all of your creditors for just one creditor. If you own your home, the lender will probably want to take a charge* on it.


If you're 55+, you may be eligible for a lifetime mortgage product which secures your borrowing plus interest on your property. Under these terms, you're not required to make repayments, the loan is repaid upon death or move into long-term care.  You can make voluntary payments to reduce the debt.


You may be able to re-mortgage to extend borrowing & release capital to pay debts. This will depend on your income multiples, loan to value debt ratio, age & credit rating.  


You should seek independent advice about whether any of the above products would be in your best interests. Money Advice Hub provides a list of trusted independent financial advisers. You should always shop around for the best deal but if you have a poor credit rating, you may not be able to get loans on the best terms.


A consolidation loan will only help if:

• it is used to pay some or all of your existing debts

• the repayments on the new loan are no more than those you are already making towards your existing debts, & you can afford to make them.


Otherwise, the new loan will add to your debt burden & make your problems worse. You will also need to look carefully at how long the loan will take to repay, what interest you are going to have to pay compared with what you are currently charged; and what charges or penalties there are, e.g. for late payments.


*Having a charge on your home means that if you don’t repay the debt, the creditor has a claim on the proceeds if the property is sold, and if you do not adhere to repayment terms agreed, your home could be at risk of repossession.

Pros

Cons