Debts come in many forms, including bank overdrafts, credit cards, store cards and loans. When you have multiple debts it can be difficult to keep track of your spending and you may be paying high interest rates. One option would be to get a new loan to pay off all these existing debts. This is known as debt consolidation.

It may seem strange getting an additional loan when you are already in debt, but what you are actually doing is getting a replacement loan. In other words, you use this new loan to pay off all your existing debts. The advantages are that managing your debt becomes easier, but more importantly you can reduce the amount of interest that you are paying by getting a loan at a lower APR than your existing debts.

If you decide to get a debt consolidation loan you should be careful with your spending. Your overdraft will be cleared and your credit cards will be empty so you may have a burning desire to go spending again. However, you should resist otherwise you will simply be increasing your debt again, which defeats the object of getting the consolidation loan in the first place.

When looking for a debt consolidation loan, the interest rate will clearly be the most important factor; the lower the better. A flexible loan may also be an advantage where you are able to pay more than the monthly requirements should your circumstances change.

Secured loans generally offer lower interest rates than unsecured loans. However, you should consider opting for a secured loan very carefully because failure to keep up with your payments may lead to you losing your property.

Try to keep the period of the loan as short as possible as this will minimise the amount of interest you will have to pay to the lender. The low monthly payments that can be achieved by spreading your repayments over a longer period may seem attractive, however, look at the total amount to be repayed and you will see just how expensive this approach is. At the same time you must still ensure that you can afford to make the payments you are committing yourself to.

It is likely that a payment protection plan will be offered when you apply for a consolidation loan. Some would consider these plans to be expensive and a waste of money, but of course the decision is yours and needs to be made in view of your circumstances. If you do want to take a payment protection plan, ensure that you check the conditions of the plan carefully as they vary considerably.




Click here for our selected list of companies who can offer debt consolidation.