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> What is debt consolidation?

Debt consolidation means taking out one big loan to pay off all your smaller debts. Having one monthly payment is easier to manage than multiple ones, and it is usually cheaper too. There are two types of debt consolidation:

1. Secured consolidation.

This means taking money out of your house to pay off your credit cards and other debt. This can be a very effective solution as borrowing money on your house is a much cheaper and safer way of taking credit. Debt Made Simple can provide an FSA-authorised specialist who can offer you professional, impartial advice. Please contact us for more information.

2. Unsecured consolidation.

This means paying off all your debts with one big loan that is not connected to your house. This can seem like a good idea, especially if it reduces your monthly payments. But will it reduce them enough?

> Is unsecured consolidation a good idea?

Although unsecured consolidation can sometimes work, in our experience it usually makes your problems worse. If you're struggling financially you should aim to freeze interest and write off debt. You shouldn't be borrowing more!

You might tell yourself that you'll tighten your belt, but what about birthdays, holidays and Christmas? Chances are you'll find yourself going into your overdraft, and it won't be long before you're using credit cards again.

To make matters worse, a big unsecured loan will saddle you with a large amount of interest over many years. There will be no light at the end of the tunnel. In a few years your money worries may be much worse than they are today.

The moral of the story is: don't be seduced by big unsecured loans with lower payments. They are often still unaffordable. Check out other solutions such as bankruptcy, the IVA and DMPs, and only go ahead with a consolidation loan if you're sure you can comfortably afford it. And whatever you do, don't listen to the banks - they're in it to make money, not to help you.

Having said that, for some people consolidation loans can work. Why don't you get in touch so we can advise you further? Contact us.