what is debt consolidation?

Debt consolidation usually involves taking out a loan to pay off your existing debts. This is typically borrowed from a bank or loan provider and can be a useful way of putting your current debts into one monthly, manageable payment.

There are several different consolidation providers to choose from and if you feel this is a route you would like to take, we suggest taking some time to understand any interest, charges or fee’s that will occur as a result.


single manageable monthly payments

You will be making one monthly payment to one loan rather than many payments to different creditors.

you won’t have to deal with creditors

Your monthly payments may be lower, or at least should not be any higher.

obtaining a loan

You will need to obtain a loan enough large enough to clear all of your debt.

securing the loan

A lender may require some form of security such as a charge on a property or they may want somebody to act as a guarantor.

making sure you can afford it

If you were able to obtain a loan large enough, with an acceptable rate of interest then you will need to make sure that you can afford the monthly repayments and that the duration is not too long.

interest rates

The costs of a consolidation loan will vary depending on the interest rate, and the provider of the loan.

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how to get debt consolidation advice

1. get advice

Speak to one of our friendly advisors and we’ll assess your situation.

2. figure out your options

Your advisor will discuss which solution is best for you.

3. make a plan

We’ll work out a plan and ensure you’re comfortable with it before speaking to your lenders.

4. start your journey

If your plan is agreed, your loan will be set up and you can start your journey to debt freedom.

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Taking out a debt consolidation loan could potentially have a negative impact on your credit rating in the short or medium term, and here’s why:

  • When you apply for a loan, the lender typically conducts a hard credit check, which might cause a slight drop in your credit score.
  • Opening a new loan account temporarily reduces your credit score because lenders perceive new credit as a new risk.

However, in the long run, if you consistently make your payments on time and in full, your credit score should gradually improve. Since your payment history holds the most weight in determining your credit rating, timely payments are crucial.

If you’re worried about managing the repayments on a debt consolidation loan, seeking debt advice beforehand is advisable.

Whether or not you qualify for a debt consolidation loan depends on your individual circumstances. Lenders typically conduct thorough checks before extending such loans to ensure you can manage the repayments.

Secured debt consolidation loans, which require collateral such as your home or car, may be easier to obtain than unsecured ones. However, if you miss payments, you risk losing the pledged possession.

If you’re considering a debt consolidation loan due to financial difficulties, seeking debt advice beforehand is wise.

Like any form of borrowing, lenders assess certain factors before approving a loan. The main reasons for rejection typically include:

  • Insufficient income to cover repayments
  • Existing debt surpassing the loan amount
  • Poor credit score

If any of these apply to you, debt help may be a better option than looking to borrow more.

Debt consolidation loans typically come with higher costs compared to other comparable loans. The primary expense associated with these loans is the interest that accumulates on your debt. Lenders often promote a representative interest rate, but the rate you actually receive might differ from the advertised one.

In addition to the interest, debt consolidation loans typically don’t involve additional fees and charges. However, you might incur fees on the debts you’re consolidating since you’ll be settling them early.

Absolutely, you can use a debt consolidation loan to settle outstanding balances on credit cards. Such loans are applicable for clearing most non-priority debts, which encompass:

  • Store cards
  • Buy now, pay later schemes
  • Credit cards
  • Catalogues

However, if you’re contemplating a debt consolidation loan due to financial challenges, it’s advisable to seek debt advice beforehand. Taking on more debt without ensuring you can keep up with the repayments could make your situation worse.

For a debt consolidation loan to be effective, discipline is key. You must be confident that you can manage not only the loan repayments but also all your other living expenses. Otherwise, resorting to additional credit might lead to serious debt issues.

Before committing to a debt consolidation loan, seeking debt advice is good idea. This helps you explore whether there are better solutions available for your financial situation.

You can get both secured and unsecured debt consolidation loans. With an unsecured loan, you’re not required to put up any asset (such as your home or car) as collateral. So if you miss payments, you won’t risk losing your home or car.

On the other hand, secured loans involve using an asset as collateral. If you fail to make payments, the asset you’ve put forward as security is at risk.

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