Debt consolidation loans and household debts

When money is tight, essential costs such as mortgage repayments and energy bills can become difficult to keep up with.

If you fall behind on your payments, finding the right solution is important. One debt solution that has helped many people over the years is a debt consolidation loan.

How debt consolidation works

A debt consolidation loan is a new loan that covers your existing debts, effectively combining several debts into one convenient monthly payment.

Debt consolidation can also help you to reduce your monthly outgoings. This can be done by arranging to repay your debt consolidation loan slowly - spreading out your loan repayments over a longer period of time than your original debt repayments, making each repayment smaller. However, be aware that you may pay more in the long run by doing this, as you will also be paying interest for longer.

Even so, you may still be able to save money if you are consolidating debts with a higher interest rate than the rate on your debt consolidation loan. If you`re having trouble calculating how much money you could save, a debt adviser can help.

Can debt consolidation help with my household debts?

Because a debt consolidation loan works in the same way as most other loans, there is no specific limit as to what it can cover. Providing your loan is big enough to cover your debts and your current lenders will allow you to repay the balance in full, you shouldn`t face any difficulties.

However, the situation can be more complicated with household debts - for example, your mortgage, or council tax, or utility bills - because they tend to be ongoing costs. Even so, you could use a debt consolidation loan to pay off your arrears (your backlog of payments you should have made by now).

Having said that, you`d need to consider why you were in arrears. If it`s because you can`t keep up with your monthly payments in general, debt consolidation may not buy you more than a temporary breathing space. In other words, it`s not likely to be the right option for you.

You`d probably be better off talking to your utility provider / mortgage provider / council and agreeing on a way of repaying your arrears over a period of time (on top of your ongoing repayments). Under certain (very specific) circumstances, paying off your arrears with a loan could make sense, but in the vast majority of cases, working with the organisation you owe the arrears to would make a lot more sense than clearing your arrears with a loan - and accumulating interest on the loan.

In general, debt consolidation tends to be appropriate for people who want to simplify their finances and/or give themselves a bit more `spare` cash every month. So paying off your other debts with a debt consolidation loan might help you stay on top of your household bills - but if you`re struggling with serious debt problems, you should talk to a debt adviser and find out if a different approach would be more appropriate.

If you`re unsure, contact one of our expert debt advisers on 0800 195 2911 or click here.

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