Curb the rising cost of living with debt consolidation


We take a look at why debt consolidation could be a sensible option for your clients to regain control of their finances.  

It’s no secret that Christmas can be one of the most expensive times of the year. This, coupled with the rising cost of living may have left your clients feeling unclear on how they can get their finances in shape. While potential for market volatility remains high, the outlook may seem bleak for some of your clients. So how can you guide them through this difficult period and help get them back on the path to financial security?

The rising cost of living and increasing consumer expenditure

With the cost of living at an all-time high and having overspent during the festive period, many people are struggling to regain control of their finances.  According to Experian, the number of personal loan accounts increased by 16% to 25.1 million in 2022. Debtors with costs that exceed their income are also rising and, as the cost of living continues to increase, this category is predicted to expand somewhat. Consumer expenditure is expected to increase even further throughout 2023, with many individuals projected to miss payments that might never have missed payments before.

The value of specialist advice

This complexity has raised the value of the advice process in general, as it’s clear that borrowers – now, more so than ever – need clear and timely communication on how to prepare for challenging times ahead.

As an adviser, increasing consumer expenditure could mean that you are being faced with a variety of complex client scenarios. You may be dealing with clients that are spiralling even deeper into debt, or you could be faced with a new pool of clients who simply don’t know how to manage debt. These are the clients that are going to require a little more help when it comes to organising their finances.

Consumer Duty : New standards of consumer protection

Right now, the FCA (Financial Conduct Authority) is driving forward the regulations under the new Consumer Duty, which sets the standards of consumer protection across financial services. The Duty, which comes at a challenging time for consumers and the wider economy, demands that “a firm must act to deliver good outcomes for retail customers.”

While the Duty is not yet in force, here at Fluent, we’re pressing ahead with our implementation plan and preparing to embed the Duty throughout our business. While delivering a market leading service – for every customer – is at the heart of what we do, the Consumer Duty will help us to strengthen our proposition. That is building upon our current principles of supporting all customers and ensuring that we deliver the best possible outcome to meet their individual needs.

Should your client consider a personal loan to consolidate their debts?

Paying off debt is not easy, particularly if your client has multiple debts and can only afford to make minimum payments each month. Designed to help move multiple debts to one simple monthly repayment, debt consolidation could make dealing with debts easier and more manageable.

Types of debt consolidation

There are two broad types of debt consolidation loans: secured loans and unsecured loans. Secured loans are backed by an asset such as a house, which works as collateral for the loan. When it comes to a secured loan, lenders are typically more open to lending to those with poor credit ratings, given that they’ll be using their home as security.

Unsecured loans, on the other hand, are not backed by assets and can be more difficult to attain; these tend to have higher interest rates and lower qualifying amounts.

Now holding a unique position within the secured lending market – with one in three UK customers now using Fluent for their secured borrowing needs- we can facilitate lending from £5,000 – £2.5 million, making this particular loan type a great option for debt consolidation.  Once the lender has their loan in place, regular repayments could help to boost their credit score too.

Meanwhile, if your client is a UK resident, aged over 55 years old and owner of a home worth over £70,000, they could be eligible for equity release. In short, this loan type uses equity as collateral, allowing your client to access a portion of the built-up equity in their home. While there is no obligation for your client to repay the loan until they die or move into permanent care, they can make monthly payments if they wish. Use our lifetime calculator to find out how much your client could potentially borrow.  

The benefits of using a secured loan for debt consolidation

The benefit of taking out a debt consolidation loan is twofold: First, your client could potentially pay a lower interest rate. Second, consolidating their payments into a single monthly payment could make budgeting easier and minimise the stress of repayment. Other benefits of using a secured loan to consolidate debts include;

1. Faster debt repayment

When your client consolidates their debt, they no longer have to worry about multiple due dates each month because they’ll only have one payment.

2. Simplified finances

When your client consolidates their debt, they no longer have to worry about multiple due dates each month because they’ll only have one payment.

3. Lower interest rates

Rates vary depending on your client’s credit score, loan amount and equity in their property. But they’re likely to get a lower interest rate with a debt consolidation loan than what they’re currently paying on their credit card.

4. Boost credit

Your client will be required to undergo a credit inquiry to consolidate their debts, which could initially lower their credit score. However, making a consistent monthly repayment, on time, should significantly raise their score over time.

Consumer understanding and support

Whilst debt consolidation could be a step in the right direction for your clients, it still requires full dedication to repay the loan on time, every time and not to be tempted to borrow again. That said, we’ll ensure that your customers are well aware of the risks associated with this particular loan type and ultimately, put them in a position where they can make an informed financial decision.

Debt consolidation will not eliminate previous behaviours such as overspending. But with your help, they can begin to lay the groundwork for improved financial planning, in ways like saving money for emergencies and setting realistic budgets. It’s also important to note that some debt consolidation loans do come with fees, such as closing costs, annual fees and balance transfer fees.  With the help of our specialist finance advisers, we will talk your clients through their options and ensure that we deliver the best outcome to suit their circumstances. Don’t just take our word for it…

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The bottom line – stay one step ahead

The difficulty with current economic uncertainty, is that there is seemingly no end date. And as we know, not all financial struggles can be battled by simply tightening the purse strings. Over the course of this year, you’re going to be faced with questions surrounding common themes: inflation and rising interest rates, debt management and the complexity of the mortgage market. But the common denominator among all financial advisers and their clients is having a financial plan to protect their returns in these challenging times.

In line with the rising cost of living, the FCA found that 52% of borrowers in financial difficulty waited more than a month before seeking help – of these, 53% regretted not doing it sooner.  That said, it’s more important than ever, for brokers, advisers and customers, to stay well connected.

Check-in regularly and ensure that your clients are safe in the knowledge that you, as their adviser, can answer any questions or handle any issues as they arise. While there is no one-size-fits-all solution to help them in counteracting rising costs, Fluent can offer a variety of financial products to help them take control of their finances.  And if you think that debt consolidation could be a suitable borrowing solution, we’re on hand to guide your client through their options.

For further information, get in touch.