What are the different types of debt consolidation loan?

16 April2021

There is more than one way to consolidate your debts and the right one for you will depend on your circumstances and your ability to repay your debt.

Debt consolidation does have its advantages - for one, it should make managing money simpler as it leaves you with one monthly repayment to make, instead of juggling many of them.

Debt consolidation loan

The first kind of debt consolidation we're looking at here is an unsecured debt consolidation loan. This is a loan that is large enough to cover your other debts, leaving you with just one loan to repay.

A debt consolidation loan leaves you with one repayment per month - and you could potentially:

  • lower your repayments
  • lower the APR you're paying.

However, debt consolidation can also increase the amount of interest you repay overall when you repay your debt more slowly.

Click here if you'd like to speak to a debt adviser about debt consolidation .

Secured debt consolidation

Another way to consolidate debts, if you're a homeowner, is by adding them to your mortgage. By securing your debts against your home, you are increasing your mortgage - which can be a risk if you're not confident you can afford it, now or in the future. It can, however, reduce your monthly repayments and your interest rate.

You basically add your unsecured debts to your mortgage and that can spread your repayments over a much longer period, which lowers the amount you have to spend on debt every month. Of course, you do risk repossession if you cannot keep up with your repayments, so always consider that carefully before securing any debt against your home.

Click here for more information about debt consolidation mortgages .

Credit card balance transfer

A third option isn't a loan at all - you may be able to transfer balances onto a 0% APR credit card. These balance transfer cards will charge you a fee to transfer your balance, but the fee you pay should be far less than the interest you would have repaid overall if you hadn't done this.

Credit card debt consolidation is only a short-term option because the 0% interest rate is only temporary and will increase to a higher level after a number of months. If you think you could repay the balance within the introductory period, a balance transfer could mean you don't pay any more interest on those debts at all. If not, you might need to reconsider.

Click here to try our debt consolidation calculator.

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