A possible bankruptcy alternative

Affordable debt consolidation
We discuss the option of consolidating debts to get lower monthly payment as a potential way of avoiding bankruptcy

Bankruptcy not an easy route

There are urban myths where you ‘go bankrupt to just wipe out all your debts’, therefore implying that it is an easy option compared to paying your debts or other solutions. Though disadvantages of bankruptcy can include:

High levels of stress

going through the bankruptcy process – form filling, attending Court etc.

A long term impact on your finances

for example inability to get credit for many years etc.

Your assets sold to pay off debts

If you own assets such as your own home, or other valuable goods such as cars and jewellery, this could be sold to pay off debts

To find out more see:

  1. Citizens Advice bankruptcy advice guide

  2. Money Advice Service’s guide on options for writing off your debt

  3. Contact the National Debtline for bankruptcy advice

  4. Read shelter.org.uk’s article on other alternatives to bankruptcy

One alternative to bankruptcy if you have high cost loans is to consolidate those debts into a cheaper loan and reducing your monthly outgoings. See our example below.

How a cheaper loan can help some avoid bankruptcy!

In many cases getting out another loan cannot help, but in a select few cases this may be solution, see the example below.

John has a poor credit file and needed to borrow money to help buy equipment for his business, he took out three loans:

Amount

Term

APR

Per Month

Loan 1

£1,000

6

304%

£253.63

Loan 2

£750

6

280%

£233.33

Loan 3

£1,000

5

458%

£381.85

Total Loans:

£2,750

Cost Per Month:

£868.81

As you can see, for £2750 borrowed, this was costing John £868.81 per month.

John then had a slow down at work at could not make these repayments any longer.

One solution for John is to consolidate all these debts into a guarantor loan to lower his monthly repayments, the following is an example**:

  • Borrowing £2,750 over 60 months
  • Interest rate 49.9 %
  • Repaying £108.69 per month, total repayable £6521.40

This therefore saves John £868.81 - £108.69 = £760 per month!

In this example John could comfortably afford £108.69 a month.

So in this particular case, taking out another loan to reduce your overall monthly repayments to an amount you can afford, could be an effective way of avoiding bankruptcy.

** Please note that above figures are for illustrative purposes only. To get actual figures Apply, or Compare Guarantor Loans.

5 Steps to Lowering Monthly Loan Repayments

The following suggests the steps you should take, if you are considering a debt consolidation loan and have a poor credit history

Step 1 – Calculate the total outstanding balances on all your loans

Before you can consider debt consolidation you need to establish exactly how much you need to borrow.  So find all of your latest loan statements and add up the total amount you need to pay off that loan.

Please note that some lenders add charges when a loan is paid off, so to get an accurate figure we suggest you ring up your lenders, and get from them total amount you would need to clear 100% of your balance and shut down the account.

Step 2 - Calculate the amount you are paying per month

You also need to add up all you are spending per month on your loans, this should be fairly simple just look at your latest bank statements and add all these up.

Step 3 – Calculate what you could actually afford per month

There is no point in taking out a debt consolidation loan if you still cannot comfortably afford this repayment.

So please look through all your income and expenses, and with the help of the Citizens Advices budget planner, assess how much you could comfortably afford to pay per month for a debt consolidation loan.

Step 4 – Calculate how much you can afford to borrow

Now that you know what you can afford to pay per month use our Loan Calculator you can now calculate the size of loan that you could take out.

Step 5 – Select a suitable loan

Now that you know how much you can afford, you need to start the process of finding a suitable loan. We offer you two options for doing this

  1. Compare loans yourself on our compare guarantor loans table

  2. Let us do the hard work and select the right loan for you based on your criteria – to do this fill our easy apply form

Frequently asked questions

1What is a guarantor?

A guarantor is someone who backs your loan application, someone who has a clean credit file.

For more information, see our page being a guarantor.

2Why can I get this type of loan even with a bad credit rating?

The guarantor lenders look at the credit file of your guarantor and therefore your credit history is less important. If you stop making your loan repayments, then your guarantor will be required to make these for you. The lender therefore looks for a guarantor with a clean credit file and an income, so maximising the chances that they will make these payments.

For more information, please see our page what is a guarantor loan.

Note that this loan application is simply a request from the lender for a no obligation quote based on the amount you want to borrow, how long for, plus the status of you and your guarantor.

Loan Calculator

Use the loan calculator below to estimate monthly loan repayments.

Approximate figures

  • Monthly repayments from to . Total repayable from to . Representative APR's from to

Click to see all our lenders Representative APR's

If you prefer we did the hard work visit Let us find a loan for you.

This tool is for GUIDANCE ONLY. It is designed to help you estimate loan repayments. It uses the representative APR of each product. Lenders have a duty to conduct affordability checks when you apply for a loan, see Responsible Lending.

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