Debt consolidation

Debt consolidation simply means replacing multiple loans with one new loan. If you have debts with different creditors, you can combine them into one loan using a debt consolidation loan.

What are the advantages of a debt consolidation loan?

Instead of paying several debts every month, you can consolidate those debts into one, easier to manage loan. Just imagine how much easier it would be to only think about one debt; One letter of correspondence in the post; One payment to make, instead of several. A debt consolidation loan can take the hassle away from paying your debts.

Debt consolidation loans often allow you to get a better interest rate too, as the multiple debts commonly paid off are high interest credit and store cards. This will depend much on your credit rating though.

You can also choose to extend the payment period on a debt consolidation loan, which means lower monthly payments.

What are the disadvantages of a debt consolidation loan?

Beware: Extending the payment period will mean increasing the total amount of interest you pay back. Although you can reduce your monthly payments with a debt consolidation loan, in the long run you will pay much more (sometimes even twice as much) in interest.

There are usually 'arrangement fees' attached to many debt consolidation loans, which means you are adding further to your debt. Many will allow you to add the fee to the loan so you don't have to pay a lump sum upfront. This means you don't feel the pinch but in the long run you are paying interest on this amount too.

Another disadvantage with debt consolidation is that once you have reduced your monthly payments, it can be easy to go out and spend that 'extra money' you now have each month. Though the monthly payments are less, the original debt still exists and mounting up futher debts will only add to your problems. If you do consolidate your debts, you need to have self-control so as not to fall into the debt trap.

Is a debt consolidation loan right for me?

• Are you tired of making multiple payments to creditors every month?
• Do you sometimes struggle to meet the minimum payments?
• Are you paying a high interest rate on some of your debts?
• Would you like to reduce the amount you pay on your debts each month?

If you answered yes to any of the above questions, a debt consolidation loan may be the right solution for you. If you are not sure about debt consolidation, visit the 'Debt Consolidation Alternatives' section of this website for a list of alternative solutions..

What to do now

If you would like more information on debt consolidation loans and other related topics, use some of the helpful links below. Alternatively, visit our comprehensive directory for a list of companies offering debt consolidation loans.

Latest Free Debt Consolidation Help articles

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Remember, Free Debt Consolidation Help is a completely free, impartial service. Although the information on this website is provided by industry experts, it should never replace the advice of a debt adviser who understands your individual circumstances.