Is it a good idea to get a debt consolidation loan?
A consolidation loan is tempting because you only pay one repayment each month, instead of paying many companies in different places. This can make budgeting easier if you only have one debt.
But, even free consolidation loans are risky because:
- They can carry higher interest rates
- They may take longer to pay back
- Repayment amounts may not be flexible if you suddenly cannot afford them
- This makes it more expensive in the long run
There are other ways to feel more in control of your debt than taking out a loan. Use our debt consolidation calculator to find out if debt consolidation or debt advice is right for you.
Is debt consolidation free?
It sometimes does not cost you anything upfront to take out a new loan, but there will be interest to pay on the amount you borrow.
When you consolidate credit card debt by moving the balances to other cards, you may be offered a 0% balance transfer fee. This might help keep costs low for a short time, but over time the offer will run out and interest will start to be applied.
A balance transfer fee is a cost you will pay to move debt from one credit card to another. Many credit card companies offer 0% transfer fees as a way to inspire you to apply. 0% means you will pay nothing to move the debt across.
The 0% offer might only last for 12 months. If you move more debt onto the card after the offer has finished, the transfer fee could even be as high as 18%.
Say you move £2,000 onto the card and the interest rate is 18%. That is £2,360 you now owe.
How expensive are debt consolidation loans?
This depends on the interest rate a lender offers you.
The rate you are offered can be affected by how much debt you have, and if you miss any repayments.
If you have poor credit, you may only be able to borrow at a higher interest rate. This means you pay more back in total to clear the loan. And you may not be able to afford that.
Find out more about interest and charges.
I can’t pay my debt so what options do I have?
We recommend you get free debt advice to look at all the options available to deal with your debt.
We will help you make a budget and find a debt solution that works for your situation.
Our free debt advice and support service is available online 24/7. You can start, pause, and pick it back up again whenever you like.