Debt consolidation can be a great way to save money on interest and reduce monthly outgoings.
When discussing debt consolidation it is essential we gather information about the types of debt the client is looking to consolidate, and take details of term remaining, APR, current lender, amount outstanding, monthly repayment, type of borrowing and any estimated remaining collections applicable.
It is key to bear in mind and make the client aware that in consolidating debt on a mortgage it is likely to increase the term over which the debt is repayable and therefore they are likely to pay more interest over the long term. They will also be securing potentially previously unsecured debt against their property which will reduce their equity in the property.
For debts that have a short term remaining or are on 0% or a low interest rate it may not be good advice to recommend consolidating them. The following questions should be well documented:
- Has the client consolidated in the past?
- What alternatives have been considered?
- Is there a clear rationale?
- Has the impact been discussed with the client ie. More interest paid over a longer term?
- Do joint parties understand the impact of taking on debt that was previously in only their partner’s name?
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