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How to consolidate Debt

If you have a lot of different debts, you may well look to consolidate them in some way. There are many different options for doing this, each with their own advantages and disadvantages.

In general, the advantages to consolidating your debts are that you have one bill and that ideally, you clear the debt sooner and by paying less interest overall. However, only the best consolidation options will provide all of these, and the poorer options may make your situation worse.

Consolidation loans

The first thing that people tend to think of when consolidating debts is a consolidation loan. In some cases, consolidation loans do help people to greatly improve their finances. However, you really do need to do the calculations to work out whether such a loan will help to manage your debts in the long run.

You should be wary of who you borrow a consolidation loan from, as many of the companies offering them enforce high rates of interest as well as additional fees. There are online calculators that you can use to compare what will happen if you choose a particular loan, to what will happen if you continue paying your debts as normal. Naturally, you need to check the conditions of such a loan thoroughly to do this.

Personal loans

An alternative to a loan specifically designed for consolidation, you may be able to consolidate your debts using a personal loan obtained from your bank. If your credit rating is good enough, this is a less costly option as it’s likely to have lower interest rates.

Balance Transfers

If your debts involve different credit cards, you could look at what their terms are for balance transfers. This way you can transfer the debts onto just one of the accounts, leaving you with a single bill. Many people transfer debts with higher interest rates onto cards that have lower rates to reduce the amount they must pay. However, you should, as always, work out what you’ll end up paying monthly and overall if you do this.


If you own property, you can ask about a home equity loan, through which you obtain the funds to pay off your other debts. The drawback to this is that you’re using your home as security for the loan, which means it’s at risk if you fail to meet your payments. However stressful and costly credit card debt may be, failure to pay it at least doesn’t put your home at risk, so if there’s any chance you’ll fail to meet your bills a home equity loan should be avoided.

In general

Consolidating your debt can ease both your financial burden and your stress levels, but only if you secure the right deals. Make sure you work out the consequences of any borrowing before you agree to it and only go ahead if it’s going to be worthwhile. Remember that the debt will not go away, you’ll just be changing how you pay it back.

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