This is a personal loan you can use to pay off your debts; there are two main types:
- Secured: Where the loan is secured against something you own, often your home.
- Unsecured: Where the lender has no claim on your belongings or property.
- The payments will still be affordable
- Your new loan is at a lower interest rate
- It will not take you much longer to pay off your debts
- £5,000 loan charging 11.9% APR with 3 years left to pay. Paying £164.40 a month, total cost £5,918.27.
- £3,000 loan charging 7.9% APR with 1 year left to pay. Paying £260.45 a month, total cost £3,125.39.
- £2,000 on a credit card charging 18.9% APR, which will take 2 years to pay off. Paying £100 a month, total cost £2,380.
- Credit cards
- Tax arrears
- Debt collection agency debt
- Payday loans
- Bailiff debt
- Outstanding utility bills
- Secured loans
Not always, you should only consolidate your borrowing if:
Can I get a debt consolidation loan with bad credit?
Yes but it may cost more. If you took out your existing loans before you had bad credit they may be cheaper.
How many debts can I consolidate?
As many as you like. If you can borrow enough to pay off what you owe there is no limit to the number of debts you can consolidate.
Will a debt consolidation loan affect my credit score?
Yes, your debt consolidation loan will appear on your credit record, but once you have paid off your old borrowing those loans will show as settled.
Are my debts paid off automatically?
No, you will be sent the money and will then need to pay off each of your debts using the money.
Work out how much you owe:
Check if there are any fees to pay back what you owe early and total up the debts you want to consolidate. You can pay off most types of borrowing including loans, overdrafts and credit card cards.
Work out what you can afford to pay each month:
Draw up a budget to check how much you can repay every month, this is even more important if you have bad credit as you need to avoid further damage to your credit record.
Compare rates for loans that fit your criteria:
Look for the lowest rate possible and try to borrow over the shortest time that keeps your new loan payments affordable.
If you have decided to consolidate your debts follow these steps:
Work out how much you owe:
Add up your outstanding debts by checking the balance for each and if any charges apply to get an accurate figure.
Choose between secured or unsecured:
If you need to borrow over £25,000 you may need to choose a secured loan.
Decide how long you need to pay:
Try to avoid extending your borrowing for any longer than you need because it will cost more.
Look for the cheapest interest rate:
Rates vary depending on how much you need to borrow and for how long, so this should be your last step.
The best way to work out if consolidating will save you money is to work out the total cost of your existing borrowing vs. the total cost of consolidating your debts.
For example, if you owe £10,000 in total spread over two loans and a credit card here is how consolidating could work:
You can consolidate any debts that can be paid off early, including: