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Which Debts Should You Consider Consolidating?

If you're struggling with debts, or merely feeling that you're spending way to much money servicing them each month, then one of the leading candidates for helping improve the situation is debt consolidation.

In brief, this is the process of combining all your various debts into one larger one, with the intention of having a lower total monthly payment than previously. Like most financial products or services, there's more to it than that of course, and if you don't do it right you could end up in a worse position than before.

However, there's no doubt that consolidation can be very effective in lowering your monthly debt outgoings, helping to solve money troubles or just having a bit more spare cash to enjoy life. But which kinds of debt are worth consolidating?

Credit Cards

Credit card debt is a prime candidate for consolidation. Not only are the interest rates on credit cards generally higher than with consolidation loans, meaning the debt is more expensive to service, the 'revolving' nature of the debt with no fixed repayment term means that if you only make the minimum payments each month you'll be paying them off for a very long time, with most of the money you pay being swallowed up in interest charges.

Consolidating your credit cards into one loan will not only save you in interest, but the fixed repayment schedule means you have a definite date to look forward to when you'll have finally cleared the debt.


Even an agreed overdraft at your bank can be hugely expensive, and if you go overdrawn without authorisation you'll probably be hit with very steep charges indeed. If you find that when your salary or wage is paid into your account every month you barely go into the black before heading straight back into the red, then this type of debt is eminently suitable for consolidation.

Personal Loans

If you've got an old personal loan which you took out when interest rates were higher, you might well find that you can get a better deal with a newer loan so it might be worth attempting consolidation, but be sure to check there are no early repayment penalties on the old loan which could make the whole exercise uneconomic.

Secured Loans

If you already have a loan secured on your property, you'll probably need to consolidate this loan with any new one you take out, unless you have a lot of equity to play with. Again, look for any early repayment charges, and be aware that if you spread an old debt over a new, longer repayment period you might well end up having to pay more interest in total even though your monthly repayments may individually be lower.

Converting Unsecured Debt to Secured

One vital thing to bear in mind with most of the debts listed above, is that apart from secured loans they are all unsecured finance. This means that if you stop paying them, you can get into all kinds of trouble but your home will never be at risk. If you use a secured or homeowner loan for consolidation, you'll be putting your home at risk by effectively staking it on your ability to keep up with the repayments. For this reason, if you're having genuine money problems, it's essential to do your figures properly to ensure you can afford to keep up with your new consolidation loan's repayments.

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