Consolidating all your debts into one loan might appear to make life easier but there might be much better ways of dealing with debts. Find out more about how debt consolidation loans work, then get free debt advice before you make a decision.
If you’ve got lots of different debts and you’re struggling to keep up with repayments, you can merge them together into one loan to lower your monthly payments.
You borrow enough money to pay off all your current debts and owe money to just one lender.
There are two types of debt consolidation loan:
Debt consolidation loans that are secured against your home are sometimes called homeowner loans.
You might be offered a secured loan if you owe a lot of money or if you have a poor credit history.
You should get free debt advice before you consider taking out a secured debt consolidation loan, as they’ll not be right for everyone and you could just be storing up trouble or putting off the inevitable.
Consolidating debts only makes sense if:
Before you choose a debt consolidation loan think about anything that might happen in the future which could stop you keeping up with repayments.
For example, what if interest rates go up, or you fall ill or lose your job?
If you can’t stop spending on credit cards, for example because you’re using them to pay household bills, this is a sign of problem debt.
You should get free debt advice before taking out a debt consolidation loan.
Always think about the potential downside of a secured loan. Your circumstances might change and your home could be at risk if you can’t keep up with repayments
A debt consolidation loan definitely doesn’t make sense if:
A better option might be a 0% or low-interest balance transfer card.
This is the cheapest way if you repay within the interest-free or low-interest period.
You’re likely to need a good credit rating though to get one of these cards.
You could also consolidate your debts into an unsecured personal loan, but again you’ll need a good credit rating to get the best deals.
Beware of the high fees some companies charge for arranging the loan.