Below is our quick guide to help you understand what’s involved, including tips on how you could stop your debts from getting out of hand.

What is debt consolidation?

A debt consolidation loan involves taking out a single loan that rolls your existing debts into one monthly repayment, which may help you reduce your monthly outgoings. If you have more than one credit card, or several different credit agreements or loans in place, you may want to consider debt consolidation loans because…

1) The same interest rate applies to just one debt amount. If you’re not in a 0% offer period, credit and store cards can have higher interest rates than loans, so a debt consolidation loan rate could be much lower

2) You can choose how long to repay the loan over, to find a monthly payment that’s affordable for you. But it’s worth noting that by increasing the term you may pay more interest overall

A debt consolidation loan – the ‘4 Cs’ to remember:

Check your finances – list your debts. Include all your outstanding balances with the interest rates you’re currently paying, any early repayment penalties (if applicable), your monthly repayment, and the remaining term. This will help you prioritise the debts that you should be consolidating first.

Create a budget – list your current income and all outgoings, which will allow you to get a more detailed view of your finances and to work out how much you can realistically afford to pay each month by consolidating your existing debts.

Can you use savings? – if you have savings that could be used to reduce your debt it could be a cheaper option than taking out a loan. Check the interest rates on your savings to see if they are lower than the interest on your debts, but it’s always best to keep some savings in reserve for emergencies.

Consider the rate – when looking for a loan to consolidate your debts with, look for a fixed rather than a variable rate, as your payments will not change throughout the term of the loan. Make sure you read the loan agreement carefully and have considered any charges that may apply if you decide to repay the loan early or arrangement fees to set the loan up.

Remember, if you take out a personal loan, don’t borrow more than what you need, as adding more to your debt means it will take longer to pay it off and could be more expensive. Make sure to pay off your debts as soon as you’re able to.

Police Mutual offers a personal loan calculator to help you decide if a personal loan is right for you. Just click here for more information.

Need more help?

Everyone’s circumstances are different. If you’re struggling with debt or worried that you may be getting into financial difficulties, you should seek confidential debt advice from one of the free services available in the market such as:

PayPlan
National Debt Line
StepChange Debt Charity

PMGI Limited, trading as Police Mutual, is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales No. 1073408. Registered office Alexandra House, Queen Street, Lichfield, Staffordshire WS13 6QS.

Neyber Limited is authorised and regulated by the Financial Conduct Authority. Financial Services Register number 718709. Registered address: First Floor (East), Tabernacle Court, 16-28 Tabernacle Street, London, EC2A 4DD, United Kingdom, Company registered number: 08806631 Data Protection Registration Number: ZA039009.