What is a Debt Consolidation?

Debt consolidation involves taking out a new loan thats big enough to pay off all / some of your existing debts.

This can deliver significant benefits:

  1. Making one monthly payment is much simpler than dealing with multiple debts to multiple creditors.

  2. It can also cost you less every month if youve used the loan to pay off high-interest debts e.g. store / credit cards and / or arranged to pay back the new loan over a long time period.

  3. As a result you could be less likely to miss payments which can lead to extra charges and damage to your credit rating.


However debt consolidation isnt always the best solution:

  1. If your current repayments are much too high consolidating your debts might not reduce them by enough to make them affordable. Perhaps you should consider a different solution.

  2. If you arrange to repay the new loan over a longer time period the extra interest could increase the overall amount you pay.

  3. Also consolidation loans free up lines of credit like credit cards store cards and overdrafts. If you use this credit to run up fresh debts you could end up in an even worse situation as youll have to repay these new debts every month as well as your consolidation loan.