The Financial Help Center
David Stanowski
David Stanowski


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Should I Consolidate
My Debts?

We'd all like to make managing our finances a little simpler if we could - and if you have a number of debts, one way of doing just that could be by consolidating them into one.

In short, debt consolidation involves paying off existing debts with a new loan (or another form of credit). In doing so, you'll essentially be grouping (or 'consolidating') those debts into one large debt, which can make it easier to keep track of what you owe and how much you're paying each month, as well as overall.

Besides making your finances a bit easier to control, debt consolidation could also reduce what you pay each month. By choosing a longer repayment period, you can make each payment smaller, which can be very useful if you want to free up money for other things.

The downside to this is that a longer repayment period will also mean more time spent paying interest, and you could pay more as a result. But you could still pay less overall if you're consolidating high-interest debts into a loan with a lower interest rate.

Different types of debt consolidation

There is more than one way to consolidate debt. Here are two of the most common methods.

Debt consolidation loan

A debt consolidation loan is quite simply a new loan taken out to pay off existing debts. You'll borrow enough to cover the debts you want to pay off (plus any associated charges), and then you'll repay the total to your new lender in single monthly payments.

A debt consolidation loan works much like any other personal loan - you'll have monthly payments that you must meet, so you'll have to be confident you can afford those payments.

0% balance transfer credit card

Credit cards are becoming increasingly popular for tackling debts. A 0% balance transfer card comes with an interest-free period on debts transferred across from elsewhere. In most cases, you'll only be able to transfer across credit card debts, but it can make them much simpler and cheaper to repay.

In effect, you'll be able to repay your debt interest-free for a while. Just make sure you pay it off by the end of the interest-free period if you're determined to avoid paying any interest at all (although you'll probably have to pay a balance transfer fee anyway when you transfer them to your new card).

Is debt consolidation the right choice for me?

Debt consolidation could be ideal if you're managing your debts well but want to simplify your finances. However, anyone who's really struggling with their finances should avoid it, as the difference it will make to their finances is unlikely to be significant enough to help with underlying financial problems. If you're struggling, discuss your options with an expert debt adviser." 

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