Consolidating debts

Consolidating your debts means that you get one single loan to pay off all or some of your other debts. A consolidation loan may be an unsecured personal loan. However, if you are a homeowner, it may be secured against your home.

If you wish to consider consolidating your debts, make sure you get expert debt advice to help you deal with your creditors and lenders.

Alternatives to consolidating your debts

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 Shelter Cymru’s budgeting advice 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.

There are many ways to resolve debt problems and many free sources of help and advice.

Advantages of consolidation loans

As long as 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 could:

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

Disadvantages of consolidation loans

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.

Other possible disadvantages include:

  • making repayments over a much longer period of time and possibly paying more in the long run
  • paying extra charges when paying off your loans and arranging others, adding to your total debt
  • paying more by using a loan that charges interest to repay household bills – for example, it will be cheaper to pay off gas arrears in installments than to get a loan to repay them.

Your new loan provider may also have stricter rules on what happens if you miss payments in the future.

Problems with paying a consolidation 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 judgment (CCJ) against you.

If your consolidation loan is a secured loan, you could be putting your home at risk of repossession if you later find you can’t pay.

For more advice on consolidation loans go to the Money Advice Service website.

Phone an adviser

If you have a housing problem, call our expert housing advice helpline
08000 495 495

Email an adviser

If you have a non-urgent problem and would like to speak to an advisor
email us

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This page was last updated on: June 16, 2023

Shelter Cymru acknowledges the support of Shelter in allowing us to adapt their content. The information contained on this site is updated and maintained by Shelter Cymru and only gives general guidance on the law in Wales. It should not be regarded or relied upon as a complete or authoritative statement of the law.