Consolidating your debts is often promoted as a way of making your finances easier to manage because you replace multiple debts with one loan to cover them all. So, you just make one payment a month to one creditor.
Calculate carefully before consolidating debts
If you are thinking about debt consolidation, the first thing to do is to calculate how much you can realistically afford every month after you have paid all your household bills. Make sure you are not taking on more debt than you can handle. If you can't reasonably afford the monthly payment, then debt consolidation won't help you and you will need another debt solution to improve your financial situation.
Also bear in mind that if you have fallen behind on the payments of your existing debts then your credit rating might have been affected. This may make it difficult for you to obtain a loan with reasonable interest rates.
Will it make sense to consolidate your debts?
Before consolidating debts, you should make sure that it makes financial sense. A debt consolidation loan might carry a higher interest rate than you are currently paying, and a longer payment term might make it more expensive.
Don't consolidate debts that are unsecured with a loan secured against your home, because your property will be at risk if you miss payments.
If you do decide to consolidate your debt, make sure you clear your existing debt in full and then write to the company and cancel the limit or destroy your credit card. It is always very tempting to keep accounts open or your card limit at the same level for an emergency. We strongly advise against this as you may be tempted to build up further debt and end up over-committing yourself.
To find out if consolidating debt would benefit you, use our online debt counselling service, CCCS Debt Remedy. This will help you identify other debt solutions suited to your specific situation.