Debt consolidation loans

A debt consolidation loan is a loan you use to pay off your existing debts. Say you owe £2,000 on one credit card, £2,000 on a store card, and £1,000 on your overdraft, you could take out a debt consolidation loan for £5,000 to repay them all over a set term.

Debt consolidation loans can be a good way to take control of your borrowing, especially if you owe money to a number of different lenders. However, they aren’t right for everyone. If you only have a few debts on which you are already paying an attractive APR, it might be worth concentrating on sticking to your existing repayment plans. 

Many standard personal loans can be used for debt consolidation. However, some lenders prefer you to use their loans for specific purposes such as buying a car or renovating your home, so it’s worth checking this before you apply. If you have a lot of debt, you may also find it harder to qualify for a low-cost personal loan. 

Whether or not a debt consolidation loan is right for you will depend on the sort of debts you have already. For modest credit card debts, for example, a 0% balance transfer credit card could be a good alternative. But if your debts are substantial, and you’re struggling to manage the repayments, a debt management plan may be a more suitable solution. 

Most banks offer secured or unsecured loans which can be used for debt consolidation. Make sure you weigh up which loan is the right option for you. While a secured loan may come with a lower interest rate, you are at risk of losing your car or home, for example, if you struggle to keep up with your repayments. 

A debt consolidation loan can be used to combine all your existing debts into one loan payment – making it easier to manage rather than having several payments to different lenders. While a debt consolidation loan won’t reduce the amount you owe, it can make your repayments cheaper if you find a loan with a lower interest rate. If you’re having debt issues, check out our debt guides for more information. 

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