Consolidating debts

This content applies to England only.

Housing laws vary between England and Scotland. Get advice relating to Scotland

Consolidating your debts involves taking out one single loan to pay off all or some of your other debts. Depending on your circumstances, a consolidation loan may be an unsecured personal loan. However, if you are a homeowner, it may be secured against your home.

Consolidation loans often carry major risks and may not be your best option, particularly if you are struggling with debt. If a consolidation loan is secured against your property, it’s like having a second mortgage – and you could lose your home if you miss repayments.

Contact an independent debt adviser to get advice on all your options.

Alternatives to consolidating your debts

If you are having problems making ends meet and are unable to pay your current bills, get professional debt advice to help you deal with your creditors and lenders – there are many ways to resolve debt problems and many sources of help that won’t cost you a penny.
Before deciding to consolidate your debts, you should look at what other options may be available to you. Alternatives to consolidating your debts could include:

better budgeting – use budgeting tools to help
making new arrangements with your existing creditors, such as negotiating reduced loan rates
checking your existing loans, credit cards and overdraft facilities to see if you are getting the best rate from each – can you switch products?
looking at ways to increase your income or reduce your spending
borrowing money from friends or relatives.

Advantages to consolidating your debts

Providing you can afford the repayments for the full period of the consolidation loan, there may be advantages to consolidating your debts into one loan:

you may benefit from a lower rate of interest
if you reduce your overall monthly repayments to an affordable level
you may find it easier to make one regular repayment (if you repay all your other debts).

Be careful to consider what life changes could occur during the time of the loan – how would you manage if you lost your job or had a child? If you think major changes are likely, or that repaying a consolidation loan may become unaffordable, seek advice.

Disadvantages of consolidation loans

Consolidating your debts is not always the best solution. Possible disadvantages include:

if your loan is secured against your home, and you fail to make repayments, then you could risk repossession
you may have to make repayments over a much longer period of time and could pay more in the long run
you may have to pay extra charges when paying off your loans and arranging others, adding to your total debt the new loan provider may have stricter rules on what happens if you miss payments in future
you will pay more by using a loan that charges interest to repay household bills – for example, it will be cheaper to pay off gas arrears in instalments than to get a loan to repay them.

What happens if you can’t pay your loan?

If your consolidation loan is an unsecured loan, it is classified as a non-priority debt. If you don’t pay, you can be taken to court and risk having a county court judgement against you. If you consolidate your loan into a secured loan and then find you can’t pay, you could be putting your home at risk of repossession.