Debt consolidation may be suitable for you if you are keeping track of multiple debts and would like to simplify your finances and/or reduce your monthly outgoings.
Debt consolidation isn't like other debt solutions, such as a debt management plan or an IVA (Individual Voluntary Arrangement), which are programmes in which you stay in touch with a financial expert throughout the agreement. Consolidation involves taking out a new loan, and using it to repay all your unsecured debts at once. After this, you will begin repaying your debt consolidation loan in monthly instalments to your new creditor. This simplifies your monthly finances, as it means you will have just one payment to make each month instead of several.
If you wish, you can also arrange to repay your consolidation loan over a longer period of time than you would have repaid your original debts, which means that each monthly payment will be smaller - thereby lowering your monthly expenditure. However, by doing this, you may pay more overall, as your debt will spend longer gathering interest.
On the other hand, if you are consolidating debts with high APRs (Annual Percentage Rates), such as credit cards/store cards, you may be able to save money in the long run as well as on a monthly basis. This is because, in some cases, the interest rate on your debt consolidation loan will be considerably lower than the interest rate on your credit cards/store cards.
Debt consolidation could be suitable for someone who is confident they can repay their debts in a realistic timeframe, but who wants to reduce their monthly expenditure and/or simplify their finances.
What if debt consolidation isn't right for me?
Before entering any debt solution, you should always speak to a professional debt adviser. They will be able to discuss your current financial situation with you, and advise you on the debt solution(s) which might be right for you.
You may find that an alternative debt solution, such as an IVA or a debt management plan, is more appropriate.
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