Should I consolidate my debt?

When you search online for debt help, there are hundreds of companies offering to roll your debts into a single loan. This is known as ‘debt consolidation’ and involves moving all your loans/credit cards and debts to one company, often with a lower interest rate and lower monthly payments.

Whilst all this may sound like a good idea, you need to be aware that:

1. You will probably pay lots more money in the long-run

Be aware that by taking out a debt consolidation loan, it’s likely you’ll pay thousands more in the long-term. This is because the debt consolidation company will pay off your loans and any penalties for early repayments, and then add their own interest on top. So, whilst you may be able to meet your monthly payments through debt consolidation, in the long-term, you could pay hundreds more for this privilege!

Many companies also charge high set-up fees which they will add on to the amount you owe, so you could end up paying more money back over a longer period.

If the loans you are paying off had interest added to them at the start, you’ll have to pay this off, and the new interest added by the debt consolidation company, so you’ll end up paying lots more back in the long-term.

2. You could lose your home if you can’t keep up with repayments

If you have credit card debts and unsecured personal loans at the moment, whilst companies may take you to county court for your debts, which could result in baliffs being instructed, it’s unlikely you will lose your home as a result.

If you consolidate your debt, many debt consolidation companies ask you to put up collateral to secure the loan – such as your home.

This means you could lose your home if you can’t keep up with the new monthly payments set by the debt consolidation company.

3. It’s fiddly, but sometimes easier to manage it yourself

Whilst it may seem like a lot more effort, you will probably be better off if you speak to the companies you owe money to and agree to pay them back more slowly. Whilst this can take longer to arrange and involve lots more phone calls and letters, it could save you hundreds or thousands of pounds in the long-term.

4. Get advice before you do anything else!

We would recommend that before you consider ‘consolidating your debt’, that you get independent advice.