Can I consolidate my debts with any loan?

A debt consolidation loan can be very useful if you`re looking to make your debts more manageable. By replacing multiple debts with a new loan, your debts will become easier to keep track of, and you could even reduce the amount you pay each month.

There are different ways to approach consolidating your debts. Some people go directly to a debt consolidation company, who can deal with your lenders on your behalf.

However, you can actually take out a personal loan to consolidate your debts, if you prefer - from a bank, building society or any other lender. If you choose to do this, you will have to settle your existing debts on your own, but some people prefer to have this control.

How can a debt consolidation loan help?

Debt consolidation can enable you to reduce your monthly outgoings by repaying the loan over a longer period of time. This will mean your debt is a burden for longer, but this may be an acceptable compromise if it means your repayments take up less of your monthly income. However, be aware that a longer repayment period means paying interest for longer, so you could pay more this way.

If you are consolidating high-interest debts such as credit cards and overdrafts, though, you could actually reduce the amount of interest you pay.

It`s worth noting here that a debt consolidation loan is not suitable for people with problem debts. It can only really help people who are managing their debts well enough, but want to rearrange the way they make their payments.

Other ways of consolidating your debts

Debt consolidation doesn`t have to involve a personal loan. Some people use 0% balance transfer credit cards, which enable them to repay their debts without paying interest (until the interest-free period ends - at which point you may want to switch to another 0% interest card). However, most, if not all, credit card providers charge a balance transfer fee - typically of around 3% - so it`s worth considering this cost in relation to the interest you are currently being charged.