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What’s the best way to consolidate my debt?

What’s the best way to consolidate my debt?
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If you have multiple debts, you may be wondering about the best way to consolidate debt. This involves taking out a loan for the total amount you owe and using it to paying off all of your debts. You will then be left with a single loan to repay. Debt consolidation is useful because it simplifies money management.

If you are paying interest to more than one creditor, it could reduce the total amount you end up paying. This is because, in some circumstances, you may be able to shop around for a lower interest rate.

The best way to consolidate your debt will depend on your individual circumstances.

Things to consider

You will need to know the true size of the debt. Go through all the relevant paperwork and get organised.

Work out what you can afford to pay on a regular basis. This will be your net income minus essential household expenses such as food, housing and bills. Be realistic about what you can pay, because this will determine the term of the loan.

Check your credit score. If you have a poor credit score, then your choices of the best ways to consolidate your debt will be limited. It is better to determine your credit score prior to applying for any loans so you know where you stand.

Here are the best ways to consolidate your debt.

Credit card balance transfer

If you have good credit, you could apply for a new credit card with a balance transfer offer. The main advantage of this method is that many offer an interest-free period on the balance ranging from 18 to 24 months. So, if you can pay off your balance in that time, you won’t accrue any further interest charges.

The amount you can transfer can vary. Most providers will allow you to transfer around 90% of your credit limit. Check our reviews of the best balance transfer credit cards.

Personal unsecured loan

This is the best way to consolidate your debt if you have a good credit score but need more than 24 months to pay the debt in full. Personal loans are provided by banks, building societies or credit unions. They offer loan terms which typically range from two to seven years.

You will be charged an annual percentage rate (APR) over the loan term. This includes interest and any other charges associated with the loan. However, the main advantage is that you make fixed payments over the loan term, so you know exactly where you stand.

Secured loan

If you own your own home and you have some home equity, then you could borrow against the value of this equity. This type of loan is offered by banks, building societies or credit unions. They will take you through the application, which could involve a house valuation.

The main advantage of a secured loan is that it has a relatively low interest rate when compared to personal unsecured loans. This is the best way to consolidate your debt if the amount you need is larger than that offered as a personal loan. Loan terms can be anything ranging from three to 25 years.

The main disadvantage is that the loan is secured against your property. You must keep up the repayments or you risk losing your home.

Individual voluntary arrangement (IVA)

If your credit rating is in bad shape and your debts are out of control, you might want to consider an IVA. This is an agreement with your creditors to make regular payments to an insolvency practitioner who will pay your debts on your behalf.

An IVA is less severe than bankruptcy since you have more control over your assets. Once the IVA is in place, all interest and late payment charges are frozen. The agreement lasts over a fixed period no longer than five years

To apply for an IVA you need unsecured debts totalling more than £6,000 and you have to be able to afford monthly payments of at least £80. Your credit rating will be negatively affected and you will not be able to borrow for the duration of the IVA.

Borrow from friends or family

If you haven’t already done so, it is worth considering borrowing from a good friend or family member.

However, respect and professionalism are key. Be completely honest and open about your financial situation. Agree on a realistic payment plan, put it in writing, and stick to it. Let them know sooner rather than later if you are struggling to make the repayments.


Think carefully about the best way to consolidate your debts. Know the risks of missing payments before you enter into any financial agreements. If you are uncertain and need some impartial advice, contact the National Debt Helpline.

Once you have your debt consolidation loan in place, stick to your plan and budget.

What next?

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