What is debt consolidation?


Debt consolidation is where you take all of your outstanding debts and combine them into a single, more manageable loan. This can either be through secured borrowing against an asset, such as your home, or through further unsecured borrowing, such as a personal loan.

Whilst consolidating all of your existing credit commitments into a single monthly repayment might sound like a good idea, particularly if you have a number of creditors to deal with each month, there are a few things you need to bear in mind:

  • As with any loan, it’s important to make sure that you can afford the repayments. Does the proposed new arrangement enable you to comfortably meet your essential living costs (such as food, clothing and travel) and priority expenditure (such as rent/mortgage and council tax) each month? A poor credit history more often than not means poorer credit terms and a higher repayment.
  • By taking out another loan, you are actually paying back an even larger amount over a longer period of time. You need to make sure that you understand when your repayments will finish and that you are comfortable with the duration of the new loan.
  • Is there an alternative to increasing your debt that will allow you to become debt free sooner? There are many alternatives to taking out another loan that will actually reduce your debt, freeze interest and charges and legally prevent your creditors taking any enforcement action against you (see IVA, Debt Relief Order and Bankruptcy).
  • A debt consolidation company will usually look to secure larger loans against an asset such as your home (the interest payable on an unsecured loan will be much higher), which means that it will be at risk if you do not keep up with repayments.

Finally, if you do decide to consolidate your debts, it’s important not to give in to temptation and start building up new debts again whilst you’re paying off your old ones.

You can read more about Debt Consolidation and whether it is suitable for your situation in our Debt Consolidation section.

Debt Advice Foundation is a registered UK charity offering free, confidential support and advice on any aspect of debt, including Debt Consolidation. If you need to talk to someone about Debt Consolidation or would like to discuss the alternatives, please call 0800 043 40 50 to speak to an adviser.