Debt consolidation loans combine all your individual debts from various sources, such as personal loans, credit cards and overdrafts, into one larger debt.
You make one payment a month instead of having lots of different debts to pay, and you deal with just one creditor.
The kind of deal you get for a debt consolidation loan depends on a number of factors. The terms of the loans offered are affected by:
- the amount you want to borrow
- your credit rating
- your monthly income and ability to pay
- the perceived risk to the loan company
- whether the new loan you take out is secured or unsecured
However, we strongly advise against consolidating your unsecured debts for a debt consolidation loan secured against your home, because your property will be at risk if you miss payments.
Consolidation loan terms
You should look very carefully at the terms of any consolidation offer to make sure it's not a more expensive option than paying your current debts, either because of a higher interest rate or a longer programme of repayments.
You should not take out a debt consolidation loan without budgeting carefully and making sure you can afford to make the monthly payment. If you can't afford to pay the debts you already have, then a debt consolidation loan is unlikely to help you unless the repayment term is very long. We would not advise on entering a long term arrangement as it is likely that you will be paying much more back than your original debt.
You can find out which is the best debt solution for your personal circumstances by using our online counselling service, CCCS Debt Remedy. This will help you decide if a debt consolidation loan is suitable for your situation.