> What is debt consolidation?

Debt consolidation means paying off all your different debts by taking out one large loan. Often the new monthly payment is a little lower than the previous ones combined, and as you only have one single payment, consolidation serves to make your debts more manageable. There are two categories of debt consolidation:

1. Secured consolidation. This means paying off your credit cards and other debts by borrowing money against your house. As borrowing against your house is a relatively cheap way of obtaining credit, this can often be an effective way of dealing with your debt problem. Debt Made Simple provides FSA-authorised mortgage advisers who specialise in debt-related borrowing. For more information, please contact us.

2. Unsecured consolidation. This means taking out a big loan that is not connected to your house, and using this money to pay off all your other debts. People are often attracted to this solution because it makes you feel as if you are in control of your finances, and it is often recommended by the banks. But will it solve your problems?

> Is unsecured consolidation a good idea?

It is true that occasionally unsecured consolidation can be effective. However, in the vast majority of cases it makes things much worse. The fact is that if you are finding yourself in financial difficulty, it is best to write off debt, freeze interest and so on. The last thing you should do is borrow more money!

It is tempting to assume that you will be able to get by via tightening your belt and budgeting. But this is not usually sustainable over a long period, especially when it comes to Christmas, birthdays and holidays. Sooner or later there's a good chance that you will end up using your credit cards again.

Moreover, a big consolidation loan will extend the length of time you are in debt, and increase the amount of interest you are paying. There will be no light at the end of the tunnel. After a few years there is a good chance that things will be even worse than they are at the moment.

For these reasons it is vital to think very carefully before committing to a consolidation loan. The best advice would be to consider the other debt solutions first, and also speak to a debt adviser. And whatever you do, don't listen to the banks - they're in it to make money, not to help you.

On the other hand, it is true that for some people consolidation loans are ok. Why don't you get in touch so we can advise you further? Contact us.