Debt Consolidation

What debt consolidation is

Debt consolidation brings several debts — for example credit cards, an overdraft and a personal loan — together into one. Most often this is done with a consolidation loan that pays off the others, leaving you with a single monthly payment and, ideally, a lower interest rate. A 0% balance-transfer credit card can achieve something similar for card debt alone.

When it helps and when it does not

Consolidation can help if it genuinely lowers the interest you pay, makes your payments manageable, and you avoid running the cleared cards back up. It can make things worse if the new loan runs over a longer term, if fees outweigh the saving, or if it frees up credit you then use again.

• Check the total amount repayable over the whole term, not just the new monthly payment
• A lower monthly payment achieved by a longer term usually costs more in total
• Watch for arrangement fees and any early-repayment charges on your existing debts
• Consolidation does not reduce what you owe — it only reorganises it

The risk of securing debt against your home

Be especially careful with a secured consolidation loan, sometimes called a homeowner loan or second charge. Turning unsecured debts — such as credit cards, which a lender cannot take your home for — into debt secured on your property means you could lose your home if you cannot keep up the new payments. Never treat a secured loan as a simple swap for unsecured debt without understanding what you are putting at risk.

Free help and alternatives

If you are consolidating because you are struggling to keep up, speak to a free debt adviser first. They can compare consolidation with options such as a debt management plan or a formal insolvency solution, and help you avoid paying for something you do not need. Only borrow from a lender authorised by the FCA, and be wary of firms that charge for debt help you can get free.