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When is Debt Consolidation Worth it?

Debt consolidation could be a good way to resolve multiple debts. Here’s what to bear in mind so you can ensure the loan is worth it.
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If you have multiple debts which are becoming unmanageable, a debt consolidation loan could be the best way to regain control over your finances. By taking out a loan where the amount is equal to – or exceeds – the total sum of the debt, you can repay these while just handling one affordable monthly figure.

This sounds like a great deal – and for many people it really is the best option available. However, this isn’t to say that it’s the best outcome in every situation. This is how to know whether a debt consolidation loan is the best solution for you.

When is debt consolidation worth it?

Usually, debt consolidation is worth it if the loan fulfils the following criteria:

  • The payments are affordable every month;
  • You will pay a lower interest rate on this than on your debts;
  • The repayment terms aren’t excessively long;
  • You will ultimately end up paying less.

Fortunately, when you choose us to help with your debt consolidation loan, we will help ensure this complements your situation. Instead of securing you something which we know you cannot possibly afford, we’ll be honest and strive to make the loan worth it.

How can I make sure this is the best value?

To ensure debt consolidation gives you the best value, you should calculate – via the repayment period and the interest rate – how much money you’ll be repaying.

For example, let’s say you have four different debts. This hypothetical situation could play out below:

Total Owed APR Repayment Period Total Cost Monthly Repayment
£1,000 20.2% 2 years £1,204.46 £50.19
£5,000 16.9% 3 years £6,303.14 £175.09
£2,000 19.9% 1 year £2,203.60 £183.63
£2,000 13.3% 6 years £2,856.74 £39.68
£10,000 £12,567.94 £448.59

(Please scroll sideways if you can't see the full table.)

In this situation, the total repayable amount would be £12,567.94.

However, if you chose a debt consolidation loan at £10,000 with an APR of 12.9%, repaid over two years, this should ultimately cost £11,319.48 with a monthly repayment of £471.64. If you were to consolidate all the debts above, the total repayable amount would be £1,248.46 less.

These examples assume that a fixed amount is paid back towards the credit card debt which are in excess of the monthly minimum payments, any reduction in these will extend the repayment term and increase the interest.

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Is debt consolidation right for me?

Although we’ve discussed when a debt consolidation loan is worth it, you should also consider this option if you answered yes to the following questions:

01. Are your debts becoming unmanageable?

If you have multiple debts from various credit cards or unsecured loans, the interest rates can build up and really put a dent in your finances. As a result, it might be beneficial to request a one-interest loan to pay off the balances on those amounts.

This can also help keep track of finances and reduce the amount owed every month – giving you more financial control.

02. Do you have a poor credit rating?

Although those with a good credit history should be able to more easily apply for debt consolidation, you won’t be prohibited from applying if you have poor credit. Furthermore, this solution can often be a good way to better your score. For example, by repaying your creditors – while managing the monthly loan repayments – you should see this figure eventually start to increase.

03. Are you looking to save money?

Although it’s not guaranteed that debt consolidation will save you money in the long run, it can help if you have debts with high interest rates. If this gets resolved through debt consolidation, you should ultimately end up saving money.

A woman with a pen and a calendar.

Sold? Decided this is the solution for you?

Debt consolidation can be a good option to help with your finances. If you think you could benefit from it then complete our quick application form and we’ll strive to find the best deal for you.

If all goes well you could be repaying your creditors by this time tomorrow. Then you can just focus on making an affordable monthly payment.

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An advisor pointing to a screen displaying Rep APR.

APRs from 5.8% to 89.9%

We are a broker, not a lender.

Unsecured Loan Representative 69.9% APR

Borrowing £7,500 over 36 months, repaying £502 per month, total repayable £18,083. Total cost of credit £10,583. Interest rate 69.9% (variable). The lenders on our panel offer loans for 12-60 months, with rates from 5.8% APR to 89.9% APR. The Representative Example is based on all loans paid out by lenders between 19th Apr 2022 and 23rd Dec 2022.

Secured Representative 11.7% APR

If you choose to add fees to the loan: Assumed borrowing of £25,000 over 120 months, plus a broker fee of £2,500 and a lender fee of £250 would result in monthly repayments of £345.55, the borrowing rate is 8.6% (variable), the APRC is 11.7% (variable), total charge for credit £16,466.00 and the total amount payable £41,466.00. You can opt to pay the lender and/or broker fees upfront, your adviser will discuss these options with you.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it. All rates vary subject to loan amount, loan type and status. Repaying your debt over a longer period of time may increase the amount you pay.

Further reading

What are the Different Kinds of Unsecured Loans?

Understand what an unsecured loan is, and how best to use the different kinds of unsecured loans in 2023.

What are the Different Types of Secured Loans?

With so many different types of loans available, it can be difficult to know which is right for you. For more information on secured loans, read this expert article.

Persistent Debt – What Does it Mean for Your Credit?

Persistent debt can affect your credit rating for a significant time period. Read to find out more.