If you are looking to consolidate your outstanding debts, you may have come across a debt consolidation loan. This allows you to put all your existing household debts into one larger, more affordable loan that gives you one single point of repayment, rather than multiple debtors.

The average British household needs around £19,000 to run their home and stay on top of their bills - and debt consolidation is a popular product used by thousands of homeowners each year for this purpose.

But as with any financial product, there are risks, especially if you are securing the loan against your home or your personal circumstances change.

A debt consolidation loan is a good idea if:

  • It helps you lower your overall payments

  • You can save money by missing out on arrears and late fees

  • It does not extend your loan term unnecessarily

A debt consolidation loan is not a good idea if:

  • The loan term is extended and you end up paying more overall, despite a lower interest rate

  • You struggle with repayments and your home is at risk of repossession

  • Your circumstances could change such as your job or the economy

  • You still require ongoing credit on top of the loan

What does a debt consolidation loan cover?

A debt consolidation can cover anything from credit cards, loans, tax arrears, overdrafts to outstanding utility bills - and it is a popular product for people with a lot to pay and stay on top of.

Particularly, if you are falling behind on the odd repayment and this is attracting late fees, it could be appealing to switch this for a bigger loan that consolidates them all and offers lower rates than what you could be paying.

It is secured or unsecured

“A debt consolidation loan comes in an unsecured form or it is secured against your home or property,” explains David Beard, founder of price comparison, Lending Expert.

“The interest rates may vary and it is measured using APRC. At the low end, you could be paying 3% APRC or 99% APR depending on your credit history, use of security and the type of lender.”

“As a product, it can be highly effective,” explains Beard. “Rather than paying into multiple creditors and trying to keep track of them all, you could potentially get a lower rate and pay straight into one account and eventually become debt-free.”

“However, it is not for everybody, since a lower rate is not really lower if your loan term extends for several more years - in which case the interest can accrue and you end up paying more.”

“In addition, if you generally struggle to keep up with repayments and a debt consolidation loan is secured against your family home, this could be at risk of repossession.”

“As an alternative, you could always consider using a credit card balance transfer, which moves all your credit card debts from one card to another, sometimes with much lower rates or an introduction fee for 12 to 29 months.”

To see if a debt consolidation loan is right for you, you can use the debt consolidation loan eligibility checker provided by Lending Expert or simply call 0161 820 8099.