Debt consolidation: what clients need to understand

The trade-off in one paragraph

A client replacing several unsecured debts with one secured loan may pay less each month, often because the term is longer. Over that longer term they may pay more in total. And debts that were unsecured become secured on their home, so falling behind could put the home at risk.^[1][2]

What the adviser will consider

Where the main purpose of a mortgage is to consolidate existing debts, MCOB requires an adviser assessing suitability to take account, where relevant, of the costs of extending the period over which the debts are repaid, whether it is appropriate to secure debts that were previously unsecured, and, if the customer is known to have payment difficulties, whether an arrangement with their creditors would be more appropriate than a new mortgage.^[2]

That assessment belongs to the adviser. You help most by passing on an accurate picture of what the client owes and what they want to achieve.

Words that help

Phrases like these keep the conversation balanced:

• "It could lower what you pay each month, but you might pay more overall."
• "This loan would be secured on your home, unlike most of the debts it would replace."
• "The adviser will compare it with other options, including keeping things as they are."