Debt Consolidation

At its most basic, debt consolidation means taking out enough new credit (in the form of a new credit card or bank loan) to pay off the balances owed to all of your other credit cards or store cards and debts out together: one new debt to pay off all of the old ones, if you like!

What to Do:


  • Take a realistic and honest look at both debts and current finances, including all outgoings compared to income. If there are already problems being experienced in meeting minimum payments to creditors, or this is likely to start happening, then consolidating debts could be helpful.
  • Work out how many creditors are owed money and roughly how much a month goes towards paying off debts. If this is more than is ‘left’ by the time the essentials are being paid each month, then it’s definitely the time to consider debt consolidation.

How to Find the Right Deal:

Do shop around for the best deal in debt consolidation as there are two main methods to consider and there are deals to be found within each:
  1. Low cost loans: low cost loans for debt consolidation are increasingly popular. However, even low cost loans have significant small-print, so do ensure that all details of what seems to be a great deal are taken into account. At the very least: * Always aim for a ‘personal’ rather than ‘secured’ loan, even if the deal with the secured loan is cheaper! A secured loan means that your home is at risk in the event that repayments cannot be made. * Calculate carefully and only take out a loan for the minimum time it will take for repayment. Secured loans particularly offer long terms which seem appealing, with their reduced monthly payment, but in effect borrowers end up paying more, for longer. * Secured loans tend to have a variable interest rate, which can be additionally risky if the level of finances means there’s no buffer zone in the event of a hike in interest rates.
  2. Credit cards: * Consolidating all debts onto one new credit card which offers a period of 0% interest can be a very cost-effective way of reducing all debts down to one, more affordable payment. Providing it’s within the credit limit that the new card offers, the balance of existing card debts are fully paid up (just provide the new creditor with this information and they will take the relevant action). * The best deals to look out for are those known as ‘life-of-balance’ transfers. This means that no interest is charged on any of the balance that is transferred initially: there’s no worry about interest kicking in at a later date. * If it’s not possible to secure a ‘life-of-balance’ deal, ensure that the balance is paid off or transferred again to another 0% balance transfer card before any interest becomes payable and don’t be tempted to use the card!