Debt Consolidation Grants – All You Need to Know & FAQs

If you’re wondering whether the government gives grants to people to pay back their dues, the answer is no.

There are, however, several other options to try which could help ease your situation.

I have compiled an article about debt consolidation grants and some programmes from which you can get debt consolidation loans.

Let’s dive right in!

How Do Debt Consolidation Loans Work?

Debt consolidation loans are a way for you to combine your multiple creditors into one. 

If you owe money to multiple businesses in England, you can combine and set up a single loan to pay back all their debts. This is called debt consolidation.

In the UK, debt consolidation loans can be hard to get. Some particular conditions apply when someone wants a consolidation loan. The details of some of the loans are given later in the article.

Negotiating a low-interest rate on your loan is the key to getting a profitable consolidation loan. If you succeed during creditor negotiations, you will save that money up instead of paying it to businesses you owe money.

Fortunately, the average APR for consolidation loans is low in the UK, and they generally range from 2.9% APR to 59.7% APR. This will help you in getting a reasonable interest rate for your debt. Moreover, you have a lot of options available to you when taking out a loan.

Different companies offer different types of loans. Debt is high in the UK, and the market has adjusted accordingly.

Factors to consider before opting for a consolidation loan

Before applying for a debt consolidation loan, there are several questions you should ask yourself first.

• Is the interest rate of the debt consolidation loan lower than the interest rate for your existing debts?
• Are you on an income which enables you to meet your monthly financial obligations comfortably?
• Is your credit score high enough to get a favourable interest rate?
• Is your debt-to-income ratio (DTI ratio) acceptable for loan approval?

You can increase your likelihood of getting a low-interest loan by addressing these concerns and checking your creditworthiness before applying.

Keep in mind that many lenders advertise their loans with a representative APR. However, they are only obliged to offer this rate to 51% of people applying for credit. That means 49% of people approved may not receive the representative APR rate.

As you can see above, this MoneySavingExpert forum user hoped to get a rate of 3.1% with Santander but was eventually offered 13.3% APR.

Suppose you meet the criteria for a consolidation loan. In that case, it is a good idea to make a loan comparison and shop around for the best repayment terms and interest rates before committing.

Does a debt consolidation loan hurt your credit score?

Consolidating your debt by taking out a loan may cause a temporary dip in your credit rating initially. When applying for credit, loan providers perform hard inquiries, which can reduce your credit score for a short while. However, if you can successfully manage your debt repayments every month, you can benefit from an improved credit score in the long run.

Alternative debt relief options

Suppose debt consolidation loans are not for you. In that case, alternative debt relief options like Individual Voluntary Arrangements (IVA), Debt Management Plans (DMP), or credit counselling might better suit your needs.

Individual Voluntary Arrangements

You can make an IVA agreement with your creditors to pay off your debts. An IVA is a legally binding agreement whereby you make monthly contributions towards your debt for around five years. The length can depend on whether or not you can stick with the monthly instalments.

With an IVA, payments are based on affordability, and you don’t need to pay additional charges or interest. However, additional fees for managing and setting up the IVA.

Debt Management Plans

Unlike an IVA, a DMP is an informal debt solution. It is when you come to an informal agreement with your creditors to pay off non-priority debts such as loans and credit cards. Debts are paid back monthly and the money is divided between the creditors you owe.

Credit counselling services

Credit counsellors offer credit counselling services to individuals who require assistance to find financial stability. Services focus on personal finance matters such as budgeting, debt management, and money management. Many debtors choose credit counselling if they are in a debt spiral and are trying to avoid bankruptcy. Credit counsellors can help you by liaising with creditors on your behalf to reduce or freeze interest rates.

Being in debt can be incredibly distressing. Credit counselling can offer debtors emotional support as well as financial help.

Deciding on the best debt relief option for your situation can be a headache. Luckily, there you can receive financial counselling from reputable debt charities in the UK. Debt charities like StepChange and National Debtline offer free impartial financial advice and can walk you through the legal consequences of your choices.

Programmes For You To Consolidate Your Debt

Multiple programmes in the UK allow you to better your debt situation and pay back your dues. The details of some are given below and are correct at the time this article was released.

It is essential to read through the loan terms and conditions before signing any contracts.

Hastings Direct Personal Loan

Hastings Direct is a company that assists people who need credit. Their loan eligibility criteria are pretty specific.
The minimum income of the people applying should be £10,000, and the loan amount ranges from £1000 to £25,000. The credit rating of the customer applying for funds must be good.

Also, you are only eligible if you are a homeowner in England.

Freedom Finance Personal Loan

Freedom Finance is another option for anyone looking for financial assistance. 

You must be a UK resident to get a loan, and your minimum income needs to be £12,000. You must be between 18 and 70 years of age to apply for a loan, and the loan amount is between £1000 to £25,999. 

One advantage of taking your chances with this company is that they tend to be more lenient regarding credit scores.

You cannot get a loan if you don’t meet the criteria, so getting debt relief grants can be extremely difficult.

Potential pitfalls of debt consolidation

From my experience, you need to understand the potential pitfalls of every debt solution signing everything.

With debt consolidation loans, you must ensure the interest rate is lower than what you currently pay. If not, you may end up paying more in the long run. Not to mention, some loans include hidden terms and additional fees, such as early repayment charges.

Some lenders may decline debt consolidation loan applications from people with poor credit histories as they are deemed a financial risk.

Debt Consolidation Grants

No government agencies offer consolidation grants, but you can get a debt consolidation loan by consulting banks and online lenders.

However, you can get government debt relief if you contact a government-approved debt advisor to apply for a debt relief order (DRO).

You will get some of your debt written off if you get a relief order. The UK government will force your creditors to write off a portion, or the entirety, of your debt if you need help, cannot pay back the debt, and don’t have any assets.

Debt relief order

A debt relief order usually lasts 12 months, and it is a debt relief option that helps people cope with personal debts. If you successfully obtain a DRO, you no longer have to make any payments or interest towards the debts listed in your DRO within the agreed period. After 12 months, you no longer have to repay these debts.

However, it is essential to note that a DRO and other debt relief options will remain on your credit file for six years.