Should Debts Be Consolidated?

Britons have never been more in debt than right now, and many if not most of us hold debts in various forms. This could be from mortgages to loans, from credit cards to overdrafts. For many of us, it is hard to keep track when holding various debts in various formats. This is where debt consolidation comes in.

Debt consolidation is a rather vague term, with many connotations. Essentially though it refers to grouping debts into one monthly payment, and it’s the convenience that is its greatest advantage.

Single Loans

One way to do this is to take out a single loan to pay off an array of debts. You then make monthly payments on that one loan. The loan can be taken out from a bank, credit union or a separate credit card company. Current rates are very competitive. If you are moving money away from credit cards that are not in interest-free periods, you will get much better rates through a loan. What’s more, by making regular payments on a single debt, you can improve your credit rating.

In our busy lives, the convenience of one monthly repayment cannot be understated. Juggling various debts each month can be a real headache, and can lead to missed payments. It can also lead to extra fees and high interest charges. What’s more, one lender in your life means one interest rate.

Possible Disadvantages

The downsides? Whilst convenience is a great attraction, taking out a loan may prove more expensive in the long-term than. That’s comparing to, for example, using credit card offers on balance transfers. you might do this to move your money from credit card to credit card and then make a concerted effort to pay off outstanding balances. The key is moving the money and organisation. As soon as the interest-free periods expire, if there is money left on the card it will start attracting meaty interest rates.

In addition to this, by taking out the initial loan, you will see a dip in your credit score, at least temporarily. This won’t be a huge problem for most people. However, it is worth taking into account when organising your finances. Regular repayment of this loan however will repair any temporary drop in rating, and then some.

Secured Loans

Finally, there is the question of whether the loan is secured or not. A secured loan, in other words one that is “secured” against an asset of yours, usually a home or vehicle, may mean an attractive rate for the borrower. However, it also puts your assets at risk if repayments are not made.


Consolidating debts requires discipline. If this is the path you take, you need to ensure that this one monthly payment is the only one you are making. In other words, don’t go building up new debts elsewhere, as this defeats the point of consolidation. If consolidation is the path you take, it is a good idea to close down your credit card accounts once the balance has been cleared. This removes temptation to build up new debt.

Plan Ahead

The most important factor of all, as always when taking out finance, is being fully confident that you can make the monthly payments. If not, you should explore other options. So, sit down, and assess your individual situation, list your incomings and outgoings and find the right product for you. For example, higher loans generally have lower interest rates, so if you are thinking of a lower amount then it may be better to transfer balances to a new credit card. Like anything in life, planning is the key.

Stack of bills