Debt consolidation FAQs

Talk About Money By Talk About Money, 14th Jun 2011 | Follow this author | RSS Feed
Posted in Wikinut>Money>Debt

Get answers to some of the most frequently asked debt consolidation questions.

What does debt consolidation involve?

In short, debt consolidation is a way of combining several debts into one, usually by paying off your existing debts with a new loan (or another form of credit). However, some forms of debt consolidation don't actually pay off any debts - instead they may just consolidate your monthly debt repayments into one, with whoever receives your monthly payment splitting it as agreed among your lenders.

What are the benefits of debt consolidation?

One of the main benefits of debt consolidation is simplicity. Consolidating your debts into one monthly payment can make budgeting much easier, because you'll have fewer payments to keep track of.

Secondly, it can sometimes reduce the amount you pay each month. In general, the longer your repayment period, the smaller each payment will be - but keep in mind that this could also cost you more in interest overall.

How many different methods of debt consolidation are there?

There are several ways to do it, but two common options are a debt consolidation loan (i.e. a new personal loan) or an interest-free credit card.

An interest-free credit card could provide a low-cost alternative to a debt consolidation loan, but the interest-free period is usually limited to around 12-16 months, so you'll have to repay your debt in full within this period to receive the full benefit and make sure you don't pay any interest.

For serious debt problems, a professionally arranged debt management plan or an IVA (Individual Voluntary Arrangement) can combine your monthly payments into one and reduce your monthly outgoings to a manageable level - although they don't actually consolidate the debts themselves. Just note that either of these debt solutions can have an impact on your credit rating, among other things.

How much debt can I consolidate?

There's no strict limit. For debt consolidation loans and credit cards, the limit will depend on how much lenders will allow you to borrow - and how much you can realistically expect to repay.

With debt management plans and IVAs, it's not so much a matter of how much debt you have - it's more about whether your existing lenders will approve of the arrangement.


Debt, Debt Advice, Debt Consolidation, Debt Management, Faq, Iva, Loans, Money

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author avatar Talk About Money
Finance expert from the UK. Specialist knowledge of debt, mortgages and lending.

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