Consolidation loans are available to GMB members who wish to combine existing debts into one loan with a manageable monthly repayment, which can dramatically reduce the amount of interest you’re paying to various lenders.
When is a consolidation loan the right choice?
A debt consolidation loan could be the right financial option for you if it:
Reduces monthly repayments on borrowings
Lowers total interest paid on borrowings - as our loan rates are very affordable
Streamlines the management of household budgets with one monthly repayment
Improves your credit score over time, providing you make the agreed payments
Offers you breathing space and a chance to plan for a debt-free future.
However, the benefits of a consolidation loan can only be fully realised if you’re totally committed to changing your financial behaviour and if:
You can comfortably afford the single consolidation loan repayment
You can keep up the repayments for the full term of the loan, which will normally be over a longer period
The consolidation loan saves you interest over that longer repayment period
You can take advantage of the breathing space to budget and manage spending
You repay the debts covered by the consolidation loan in full - ideally cutting up credit cards and closing accounts
Consolidation loan or debt management?
If you can’t control your spending or manage your household budget, this may be a sign of problem debt. This may also have contributed to you having a poor credit rating, which will normally mean that you won’t be eligible for an unsecured consolidation loan.
If this is the case, you may be better seeking debt advice from a specialist debt company such as Step Change who will help you negotiate with your creditors and agree suitable debt management plans.
Carefully consider your options
GMBCU offers unsecured consolidation loans. Some organisations will provide secured debt consolidation loans, which means the amount you borrow is secured against an asset, usually your home. However, this means if you take out a secured consolidation loan and you miss payments, your home or asset is at risk.
A debt consolidation loan can be used to repay a range of existing credit agreements, including credit cards, personal loans, overdrafts and store cards. When you consolidate, you create one larger loan, therefore expect the term or repayment period of the loan to be over a longer period.
So, if you have carefully considered all your options and you feel a consolidation loan is right for you to refinance some or all your current borrowings, here’s our suggested approach:
1. Do you have savings?
If so, consider if some of your savings could be used to pay off some of your debts. With interest rates on savings at an all-time low, it may be better to prioritise the repayment of expensive credit.
2. Household budget
Budgeting is essential, so review or create your current household budget while looking for possibly savings opportunities - e.g. cancelling a rarely-used gym membership.
3. Summarise all your debts
The simplest way is to list each debt as follows:
- Name of Creditor
- Interest Rate (APR)
- Balance Outstanding
- Monthly Repayment
4. Prioritise your debts
Next, assess which of your debts you want to bring together in a consolidation loan. We’d suggest that you tackle your most expensive debts first. Some people prefer to tackle the biggest debt first. It’s up to you, but always make sure you have a long-term plan.
5. Apply for a Credit Union Consolidation Loan
Our maximum consolidation loan is £15,000 over a maximum repayment period of 72 months. Don’t be tempted to borrow more than you need.
Processing your consolidation loan
GMBCU is always keen to support members who wish to take control of their finances. As a responsible lender, we have a duty to ensure we don’t over-commit our members financially and to be confident a loan is matched to an individual’s circumstances.
To assess a Credit Union consolidation loan application, we will:
Carry out a credit reference check. This will be a soft credit check which does not leave a footprint or impact your credit rating. Normally we would be looking for at least a minimum credit score which is in the Fair - Good range for this type of loan.
Request your permission to access your bank statements through open banking.
Request a summary of all outstanding debts in the summary format suggested above.
Take into consideration your account history if you are already an active member of the Credit Union.
As consolidation loans are by design normally longer-term loan agreements, we may suggest a phased approach to lending and when your loan is approved, we transfer the funds to your nominated bank account for you to settle the agreed debts.
We’ll advise you of your credit score when your loan is first agreed upon, and we’ll review your credit report via a soft search to ensure the agreed debts are settled. We recommend you track your credit score using an application such as CreditView, which is free for our members, as our joint long-term aim is to increase your credit score and reduce your debt.
How to apply for a consolidation loan
If you feel a consolidation loan is right for you, we can help. Find out more about the different types of loan we offer to our members, or apply for a consolidation loan online or via the Nivo app, here.