Debt Consolidation Loans

Taking control of your finances is a big achievement, and you have the power to decide the best path forward. If you have balances across a few different cards, putting them together into one monthly payment might sound like a great idea. It always pays to look closely at the maths first. Sometimes interest rates on new loans are high. You could end up paying back more money than if you’d kept your original credit card payments.

What is Debt Consolidation Loan?

Consolidating your debt means taking out a new loan to pay off the money you already owe. The debt doesn’t disappear. You just owe one lender instead of several. You must look at the interest rate on the new loan carefully to see how it affects your budget. A bigger loan with a standard interest rate could cost you more over time than two smaller loans. Some clients find their monthly costs drop if they use a low-interest loan. Keep in mind that these low rates usually only last for a short time.

What debts can I include in a Debt Consolidation loan?

You can usually group together credit cards, store cards and personal loans. Credit and store cards often draw people in with interest-free deals. When those deals end, the extra charges can build up quickly. Personal loans and payday loans also have charges that can catch you off guard.

What are the pros and cons of Debt Consolidation?

We want to give you the clear facts so you can make an informed decision. Here’s a look at the benefits and risks.

The Positives	The Risks
One simple payment: You only have one lender to track.	More total cost: You might pay more overall because the loan takes longer to clear.
Lower monthly costs: A better interest rate could reduce what you pay each month.	Temptation: You might be tempted to use your old cleared credit cards again.
Credit protection: Doing this early might protect your credit score in the short term.	Higher rates: If your credit score is low, your new rate could be very high.

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What are the different types of Debt Consolidation loans?

There are two main types of consolidation loans. Secured loans are tied to your house. These are risky because you could lose your home if you can’t pay. Unsecured loans are not tied to your property but usually come with higher interest rates.

When might I consider a debt consolidation loan?

A consolidation loan makes sense if your new monthly payment is lower and the total amount you owe doesn’t increase. Getting a new loan doesn’t change the spending habits that created the debt. If you think you might use your old cards again, it is a smart move to explore other options.

There are other ways to manage your money. Options like a Debt Management Plan or an Individual Voluntary Arrangement also combine your debts into one monthly payment. Sometimes they even freeze the interest entirely.

Get debt advice first

Before taking on debt consolidation, we recommend you speak to an impartial financial advisor. However, if you’d like further information or advice on the other debt solutions mentioned above, such as IVAs and DMPs, our advisors are on hand. Get debt help online or call us on 0800 316 1833 for a confidential conversation.

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