Debt Consolidation

People with multiple debts, such as several credit cards, store cards and personal loans, may find it hard to keep track of payments and may be paying high interest rates. Consolidating replaces these with one debt.

Common methods include taking out a debt consolidation loan from a bank, using a balance transfer credit card with a low introductory rate, borrowing against home equity or entering a formal debt management plan through a debt advice organisation.

For example, someone with three credit cards charging around 25% interest might take out a personal loan at 10% to pay them all off, leaving them with one lower monthly payment and less interest overall.

Debt consolidation can help, but it is not a solution in itself. Spreading debt over a longer period can lower monthly payments while increasing the total interest paid. Securing unsecured debts against a home puts the home at risk. And consolidation only works if the borrower avoids building up new debts on the cleared credit cards. Independent debt advice can help people find the best option.