Debt consolidation is a way of grouping multiple types of debt, such as credit cards, overdrafts and loans into one, easy-to-manage loan. A debt consolidation loan could help when trying to manage your finances. You may find that debt consolidation isn't right for you, in which case you might find a bad credit loan or an unsecured loan better suited for you.
Although you’ll still have the same amount of debt, combining it under one loan could save you money on interest and reduce your monthly repayments.
The pros and cons Combining your debt into one lump sum could reduce the stress of having multiple repayments, and could get your finances and credit rating back on track.
There are some positives to consider:
Credit score – Consolidating your payments into one may make it easier to avoid late payment, which could help improve your credit score.
Lower interest rate – Credit cards, overdrafts and loans can have high interest rates. By consolidating your debt into one loan repayment you could save money on interest.
And with the positives comes the negative:
Longer repayment period – Depending on how much you owe, it could take longer to pay off your debt and may be more expensive.
- Fees – Some lenders may charge fees for consolidating debt.
To understand how much you need to borrow you may first want to consider how much you owe. Start by adding up your existing debt and any charges that apply for early repayment. Once you have an accurate figure you can start searching for suitable loans.
Using a personal loan could be a good way to merge your debts into something more manageable, there are a few things to consider before you apply:
- Work out how much you need to borrow – We compare loans from £1,000 to £36,000.
- Choose your repayment period – This could range from 12 months to 5 years, but may also depend on the provider.
- Most unsecured loans have a fixed interest rate meaning your repayments will stay the same throughout the agreed term depending on your repayments. Make sure you’re happy with the rate before you go ahead.