Is a debt consolidation loan a good idea?

Debt consolidation can be a useful way to manage multiple debts by combining them into a single loan. It may make repayments easier to track and give you one fixed monthly payment, but it is not automatically the cheapest option. The overall cost will depend on the interest rate, loan term and amount borrowed.

This blog explains how debt consolidation loans work, when they may be suitable, what to consider before applying and how to decide whether consolidating your debts is right for your circumstances.

What is a debt consolidation loan?

A debt consolidation loan is a personal loan used to repay some or all of your existing debts. This could include credit cards, overdrafts, store cards or other loans. Instead of making separate payments to multiple lenders, you could use one loan to clear these balances and make a single monthly repayment to one lender.

Could debt consolidation be right for you?

A consolidation loan may be worth considering if you have several debts and want to simplify your repayments. It could also make it easier to keep track of when payments are due. For example, you may currently have three separate credit commitments with different repayment dates. Combining them into one loan could mean having one fixed monthly payment and one repayment date to remember.

However, you should make sure the new repayment is affordable alongside your normal household costs. Taking out further credit when you are already struggling with debt could make your financial situation worse.

What should you check before applying?

Before taking out a debt consolidation loan, compare your existing debts with the new loan. Consider the interest rate and APR, monthly repayment, total amount repayable, loan term and any fees or charges. Check when your existing repayments are due, whether any debts have early repayment charges and when your first new repayment will be taken. This can help you avoid missed payments or unexpected costs during the switch.

Most importantly, make sure the new repayment is affordable alongside your regular household costs. Avoid building up new balances after consolidating your debts. Clearing credit cards with a loan but continuing to spend on them could leave you with more debt rather than less.

Could consolidating your debts make things easier?

There is no one-size-fits-all answer. A consolidation loan could make managing several debts simpler, but it is not automatically cheaper or the right option for everyone. Take time to understand the total cost of the new loan and make sure the repayments are affordable. If you are already struggling to meet your payments or feel you are losing control of your finances, consider seeking free, independent debt advice before applying for further credit.

For any further help or advice, MoneyHelper has a dedicated debt-consolidation guide you can access here.

How Simple Personal Loans can help

If a personal loan is right for you, Simple Personal Loans can help you explore your options through a simple online application. Our platform matches your details with a panel of lenders, so you can complete your application online without needing to make a phone call.

If your loan is approved, some lenders may be able to send the money on the same day. This depends on the lender, the time you apply and your bank. In some cases, the money may arrive on the next working day. We want to make applying for a loan simple and clear. You will be able to see the details of any loan offer you receive, helping you understand the option available before you decide. Learn more here.