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Debt consolidation

Debt consolidation. Is it right for you?

Debt consolidation loans aren't right for everyone. It's important to check all of the other options available and make sure you're making the right choice.

While consolidating debt often sounds like a promising solution, this could make your situation worse.

What is debt consolidation?

Consolidating debt usually involves taking out new credit to pay off existing credit. Most people do this to reduce the interest rate on their debt, to bring down their monthly payment amount or to reduce the number of companies they owe money to.

Debt consolidation can be a useful strategy in some situations but for many it can involve extra costs, and potentially makes a difficult situation much worse. That's why it's best to get expert debt advice before taking out a consolidation loan.

Debt consolidation or debt management?

Debt consolidation and debt management are two different things but it's easy to get confused between the terminology used when trying to sort out your debts.

Our debt consolidation calculator can help you find out whether you need debt consolidation or debt advice.

Debt consolidation involves taking out new credit to pay off your debts and debt management is where you negotiate affordable payments with the companies you currently owe money to. Both can lead to lowering payments but are completely different ways of dealing with debt. If you're not sure which option suits your circumstances then we can help.

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See through the marketing

Debt consolidation is often made to sound like a great solution but it's important to try and see through the sales patter and look at the facts.

Selling point of debt consolidation Reality
"Consolidate all of your debts into one place" Many people taking out consolidation loans will end up spending on credit again, so many still have lots of accounts to deal with.
"Lower your monthly payments" By lowering your payments you're more than likely going to take longer to repay your debts.
"Reduce your interest rates" Even with lower interest rates, consolidation loans can often end up with higher total interest to pay because they're generally taken out over a longer time period.
"Manageable monthly payments" Consolidation loan payments aren't always affordable. Without a proper budget in place it's hard to know.
"Government debt consolidation" Some companies will imply there are government debt consolidation schemes to help with debts. No such schemes exist.

Secured consolidation loans

Some consolidation loans require you to secure the debt against your home. However if you fall behind with these types of debts or can’t afford to repay them you will be at risk of house repossession.

In some cases it may be an option to use the equity in your home to manage debts or support your retirement plans, but you should always seek expert mortgage and equity release advice if you’re considering this option.