If you have several different personal loans and credit cards, keeping track of all your monthly repayments isn’t always easy.


It can also be hard to stay on top of exactly how much interest you’re paying, and which debts you’ll pay off when.

One way to make managing your debts simpler, and to reduce the amount of interest you pay overall, is to consider consolidating them, whereby all everything you owe is moved into just the one loan. This cuts down on your paperwork, as you’ll only get statements from one provider, and there’ll only be one monthly payment to make rather than several.

Here, explain exactly how consolidation loans work, and what to consider before you apply for one.

What is a consolidation loan?

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With a debt consolidation loan, you borrow enough money to pay off all your current debts, so you’ll only owe money to just one lender. Check first whether there are any lock-in penalties to pay when you clear your debts, so that you can work out whether these will wipe out the financial benefits of switching to a consolidation loan.

Find out too whether any consolidation loan you are considering is secured or unsecured. If a loan is secured, this means the lender can use your home as security if you don’t repay what you owe. If a loan is unsecured this means that the lender won’t have any claim to your property if you’re unable to keep up with repayments, which makes them less risky.

Things to consider

Having just one loan rather than lots of different credit accounts can make it much easier to stay on top of your finances. If you’ve only got one monthly payment to make, you’re more likely to repay what you owe on time every month, which could potentially boost your credit score.

It can also lower your monthly repayments if the interest charged on the consolidation loan is lower than the rates charged on your current debts. It’s vital to work out exactly how much you’re repaying overall compared to how much your consolidated payment will be, so you can see how much you could save.

If your consolidated payment is higher than the cost of your existing payments, then it won’t be worth switching, even if having one payment is simpler to manage. Remember that if you choose a consolidation loan with an extended term, this may mean lower monthly payments, but the total amount you’ll have to repay could be higher.


Always explore other ways to consolidate debts and reduce your monthly payments too. For example, if you only have credit card debts, plenty of balance transfer credit cards offer 0% introductory periods for several months, enabling you to pay off what you owe without being charged any interest at all. However, the maximum amount you’ll be able to transfer will depend on the credit limit the balance transfer card allows.