Bringing several debts into one payment

Paying several debts each month means several dates, several statements and several balances to watch. Some people look at joining them into one loan. StepChange Debt Charity says this helps some people and leaves others deeper in debt.

What consolidating means

Debt consolidation usually means taking out a new loan and using it to pay off the people you owe. You then make one monthly payment to the new lender. The debt itself stays. It now sits under a new credit agreement, with its own terms. There may be set-up fees or fees for paying early.

A smaller payment over a longer time

A single loan can bring the monthly payment down. StepChange explains that a smaller payment usually means paying for longer. The longer the loan runs, the more interest builds up. StepChange says these loans often end up with more interest to pay in total.

Loans secured on your home

Some consolidation loans are secured against your home. They are sometimes called homeowner loans. If you fall behind, the lender could repossess the home and sell it to get its money back. With an unsecured loan, the home is not immediately at risk if you fall behind. Citizens Advice explains that the lender can still take court action.

When the old cards stay open

A consolidation loan clears the old balances. It leaves the cards themselves in place. StepChange says many people take on new debts while they are still repaying the loan. Its guidance is to use the loan to pay each debt off in full and to cancel the old credit agreements in writing.

A debt management plan is a different thing

In a debt management plan, a provider agrees affordable payments with the people you owe. It involves no new borrowing. You still make one monthly payment. Creditors may agree to freeze interest and charges. Some providers charge fees for running a plan. StepChange's plans have no set-up or monthly fees.

StepChange also warns about adverts for government debt consolidation. No such scheme exists.

If the payments are already hard

StepChange says a consolidation loan cannot help if the payments still leave too little for food and clothing. Free debt advice looks at every option first. StepChange, National Debtline and Citizens Advice all give it.

In England and Wales, a debt adviser can apply for Breathing Space for you. It gives up to 60 days of protection. During it, your creditors cannot add interest or charges to the debts it covers, and they cannot take enforcement action. You still make your repayments. Applying is free.

GOV.UK also points people to MoneyHelper to find a free debt adviser, online, by phone or in person.