Effect of debt consolidation loan on Universal Credit

BlueRomeo

Hi. I have debt of around £16,500 over two high-interest credit cards which I am struggling to make any headway with with. I cannot afford to pay much more than the minimum payments. I would like to apply for a cheaper debt consolidation loan at a significantly lower interest rate. If approved, on receipt of the loan I will be immediately paying off the credit cards and will have just the new loan. My wife and I are in receipt of Universal Credit. I am struggling to find anything to explain the effect the receipt of this loan on our Universal Credit entitlement.  It is seems off for it to be treated as income or savings given I will effectively be transferring the existing debts from two institutions to a single new institution.

Can anyone advise on how the debt consolidation loan will be treated?

Grumpelstiltskin

On UC a loan would be difficult AND it is not the answer to your problem.

Go here  
Debt-free wannabe — MoneySavingExpert Forum

The good people on there will help you find the best solution to your problem.

Newcad

If you can get a loan to do what you propose then the loan money should go in and out of your bank account in the same UC monthly period, you should tell UC each time.

The change of circumstances - loan = savings above £16K  - is applied from the start of your UC month.
The change of circumstances - cards paid off, money gone - is applied from the start of your UC month.

So as long as the two things don't straddle the UC month end/start then they cancel each other out.
(But if you have £16K+ at your UC month end then your UC will be stopped and you'll get no UC for that month, plus you'll have to reclaim UC once the money has been spent).

Although they do cancel out you have to tell UC when the money goes in, and when it goes out again, because if you don't tell them then they will find out and start asking questions, and they may even suspend your UC for months while they ask.

macman

A consolidation loan is NOT cheaper. The monthly payments may be less, but the loan term will be extended and so the total amount with interest you will end up paying is increased.

BlueRomeo

Grumpelstiltskin said:

On UC a loan would be difficult AND it is not the answer to your problem.

Go here  
Debt-free wannabe — MoneySavingExpert Forum

The good people on there will help you find the best solution to your problem.

Thank you for the message. I will check the resource you've linked to. However, my issue is that due to the nature of my employment, the usual remedies including IVAs, bankruptcy or anything else which might signify having unmanageable debt are not an option. Hopefully someone can advise on the UC issue.

Grumpelstiltskin

If you are looking at a consolidation loan then you do have unmanageable debt, go to the DFW board and you will be given advice suitable for your circumstances.

macman

If you are having difficulty in making even the minimum monthly payment, then by any definition the debt is 'unmanageable', as at present you have no prospect of reducing it, let alone clearing it. So the advice given to visit the DFW board is sound.

enthusiasticsaver

If your cards are high interest and you cannot get 0% deals then any consolidation loan will not be cheaper and no doubt lead to higher debt.  Post on DFW forum for advice on how to sort out your finances.  Very few lenders will lend to anyone on benefits although if UC no doubt you are working but on low income.  Presumably as it will be going straight into paying off debts should you go for it then it is not savings.