FAQs: Commonly Asked Debt Consolidation Questions

You may be familiar with the term 'debt consolidation'. But if you're thinking about taking this approach, it's likely you'll need a few important questions answering first.

Debt consolidation could help you to arrange payments you can afford, simplify your finances and deal with just one lender/company rather than several - but it's not an approach that will be suitable for everybody.

Of course, it's important to get some professional advice before you make any major decisions about your finances. In the meantime, we answer some of the most frequently asked debt consolidation questions here.

What does 'debt consolidation' mean?

Debt consolidation simply means bringing multiple debts together. By consolidating your debts, you'd effectively combine several debts into one - giving you a single payment to make per month to a single lender/company.

How could I consolidate my debts?

How you could consolidate your debts depends largely on what situation you're in.

If you can no longer afford your agreed monthly payments to your unsecured debts, there are a number of 'debt consolidation' solutions that could help you get back in control of your debts with a single, affordable payment per month, e.g. a debt management plan, an IVA (Individual Voluntary Arrangement), or a Trust Deed (Scotland only).

However, 'debt consolidation' is most commonly used to refer to a debt consolidation loan.

Why would I want to take out a debt consolidation loan?

A debt consolidation loan can help some borrowers simplify the way they repay their debts and make their finances easier to manage.

As long as you're comfortably repaying your debts, consolidating your debts with a loan could help you to:

• Take some pressure off your monthly budget
• Arrange lower payments you can comfortably afford
• Simplify the way you repay your debts.

Read more about the benefits of a debt consolidation loan here.

How much will I repay each month towards a debt consolidation loan?

One of the advantages of a debt consolidation loan is that you'll be able (within limits, of course) to arrange monthly payments you can afford.

You may decide to repay the loan with larger monthly payments: although this will take a bigger chunk out of your monthly budget, you'll be able to repay what you owe more rapidly - and could save yourself a fair bit in interest payments.

On the other hand, you may agree to a longer repayment period, which will reduce the size of each monthly payment you make. This could give your monthly budget a bit more leeway for your other costs - though bear in mind that interest will grow for longer too, which could cost you quite a lot more overall.

Our debt consolidation calculator could help you work out the size of your monthly debt consolidation loan payments.

Will a debt consolidation loan affect my credit rating?

Taking out a debt consolidation loan won't have a negative effect on your credit rating, as other debt solutions can. In fact, it could actually help to protect it, if consolidating your debts helps you to keep on top of all your monthly payments.

Are there any downsides to a debt consolidation loan?

If you secure the loan against property, you need to be aware that this can put your property at risk of repossession if you don't keep up with your payments.

Plus, by combining all your debts into a new loan, you could end up running up new debts on lines of credit such as credit cards and overdrafts if you don't feel you have the willpower to avoid doing that. However, you could decide to cut your credit cards up and cancel any overdraft facilities you have to make sure you avoid this temptation.

Any more questions?

One of our debt advisers can answer your debt consolidation questions if we've not covered them here.

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