Consolidating your debts is a way of merging lots of different debts into one loan to lower your monthly repayments.
It's only a good idea to consolidate your debts if:
- you end up paying less interest than you were paying before
- the overall amount you repay doesn’t increase
- and you can afford the repayments.
You have 2 options:
- A secured loan is rarely the best option. They often charge a high interest rate, spread your payments over a long time and secure the loan against your home. You need to consider the downside of putting your home at risk.
- A personal loan from a bank is unsecured so your home won’t be at risk. Calculate exactly what you owe to your lenders and borrow this amount.
Paul Lewis explains why it's important to manage debts
Paul Lewis, financial expert and presenter of BBC Radio 4's Moneybox, talks about why it’s important to plan to get rid of debt.