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Consolidation loan

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A debt consolidation loan is where you consolidate all your debts into one loan, so you only have one payment to make each month.

Once the loan is agreed, you close down the various credit card and loan arrangements you’ve had previously and use the consolidation loan to clear the debts.

Most debt consolidation loans are unsecured, which means the lender can’t lay claim to your home if you are unable to keep up with repayments, but the lender may want to secure the new loan on your house if you own property.

A debt consolidation loan won’t affect your credit rating, unless you fall behind on payments. Your new monthly payment should be lower, but check that you can afford the new payments.

​If you have a poor credit rating you may not be able to take out a consolidation loan, or you may be offered one on worse terms and conditions, for example at a higher interest rate.

To find out if a debt consolidation loan is right for you, talk to one of the debt advice providers on DebtHelpCompare.com