EyeOnWhat it means
Typical routes include a consolidation loan, a balance transfer or, for some homeowners, borrowing against property. The new lender pays off the older debts and you repay the new one.
Simpler is not always cheaper. Whether it saves money depends on the new rate, any fees and the length of time you take to repay.
How it works
A longer term lowers the monthly payment but can raise the total interest. A shorter term does the reverse. Securing the new debt against an asset can lower the rate but puts the asset at risk.
There are also non-borrowing approaches, such as repayment arrangements agreed with creditors through a debt advice service.
A simple example
Consolidate 9,000 at 10% interest. Over 36 months the payment would be about 290 and total interest about 1,455. Over 60 months the payment drops to about 191 but total interest rises to about 2,473. The lower monthly cost is real, and so is the higher total. Figures are illustrations only.
Things worth checking
- Add up what you currently owe in total, and what you would owe in total after consolidating.
- Check arrangement fees and early repayment charges on the old debts.
- Spending habits matter: freed-up card limits can lead to debt building up again.
- Compare with other options, including free debt advice, before deciding.
How it varies by country
Products, regulation and available debt-solution schemes differ greatly by country.