What are debt consolidation loans?

If you have several debts with different lenders, such as loans and/ or credit cards, a debt consolidation loan may help. This involves merging all of your debts into one. Although a larger debt, you are only repaying one lender with one repayment.

These loans may be unsecured (not secured against any personal assets) or secured (this may be secured against your home or car).

How does this work?

This works by borrowing enough money to cover paying off, in full, all of your existing debts. This leaves you with one payment to one lender. You may be offered a secured loan if those debts are on the high side or if your credit rating is low.

What to consider (negative points/ risks)

Can you comfortably afford to sustain the repayment for the term of the loan? Could you cope if the interest rates rose?

Do you feel you need help with spending rather than a loan to cover many debts of whatever size?

If the loan is secured and you fail to make the repayments, you home could be repossessed.

If you take an unsecured loan, you need an almost spotless credit rating and may suffer from having to pay higher APRs.


Using this wisely can give you a chance to cut on extra spending and get yourself back on track.

At risk of repeating the above, one repayment to one lender will save you money as opposed to a few loans/ cards all with their own APRs. One APR generally means repaying less in total.

You may even find a positive to your stress levels!

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