Increased overall interest repayment
A debt consolidation loan benefits from lower monthly interest rates due to the extended term over which it is paid, but this means that a higher interest total will be paid overall. Compare the interest rates on both the loans you are thinking of consolidating with the debt consolidation loan to check the affordability and suitability of this type of borrowing.
Temptation to borrow more than is needed
Don’t lose sight of the reason you are taking out a debt consolidation loan – to effectively manage existing debt. Try not to be tempted to borrow more than you actually need – it will still need to be repaid!
Can a debt consolidation loan be secured?
Yes, a debt consolidation loan can be secured against an asset such as your house by way of a first or second charge mortgage. This lowers the risk to the lender and thus can often come with lower interest rates than those found on a personal loan. Don’t forget however that your home is at risk should repayments not be made, so make sure you are able to afford the mortgage for the full duration of its term.
Can I seek independent advice about debt consolidation loans?
Yes. An independent organisation called the Money Advice Service has been set up by the government to offer free, impartial advice to those who are struggling with debts. The Money Advice Service can be contacted online via their website https://www.moneyadviceservice.org.uk or by telephone 0300 500 5000.