Three ways to consolidate your debt

Three ways to consolidate your debt

author: Bryony Pearce

By Bryony Pearce

Not sure which is the best way to consolidate your debt? See if any of these three options tickle your fancy.

Debt consolidation is a popular option for people who owe money to more than one lender – whether it be for credit cards, store cards or loans – mainly because of the financial simplicity if offers.

Just imagine it’s pre-debt consolidation… you have three different sets of outstanding debt. The interest rates vary for each. They all come out of your account on different dates. Budgeting is a nightmare.

Now let’s fast forward – it’s now post-debt consolidation. You owe one sum to one lender. It comes out of your account on the same date each month. Interest rate is no longer plural. Budgeting is bliss. Sounds less stressful, right?

If you’re thinking about consolidating your debts but you don’t know how to do it, here are three options you have with the downsides too...

Debt consolidation loan

The first option we’ll explore is a debt consolidation loan, and there are two types available:

Personal debt consolidation loan: with this type of loan, you can typically borrow anywhere between £100 and £15,000 over a shorter loan term of up to around five years – both of these elements will vary from lender-to-lender, though.

Unlike with the next type we’ll look at, with personal debt consolidation loans, you don’t need to put any form of asset up against the money you borrow.

Secured debt consolidation loan: you can generally borrow a larger lump sum of money with secured debt consolidation loans. Again, this will vary from lender to lender, but usually, you can take out between £10,000 and £250,000.

As the name suggests, you have to secure the loan against some form of asset with this kind of lending – normally your home.

How it works

To consolidate your debt using a debt consolidation loan, you take out a single, new loan that is large enough to cover all your existing debts, and then use the new loan to pay off all your old borrowings.

Potential drawbacks

There are a few things you need to consider, though:

  • If your credit history has deteriorated since you took out your outstanding lines of credit, you may be faced with higher interest rates.
  • If you opt for a secured debt consolidation loan, your home could be at risk if, for whatever reason, you’re unable to keep up with your repayments.
  • If you take out the new loans over a longer term or at a higher interest rate, then you may end up paying more interest overall.

Credit cards

The second avenue you could go down is putting your debt onto a credit card – ideally a 0% credit card. With 0% credit cards, you don’t have to pay any interest for a limited time – making it a cheaper alternative to most other forms of borrowing.

How it works

To consolidate your debt with a credit card, you need to thoroughly research the different deals available, go through the standard credit card application process, clear off your existing debt by transferring the money over, and then make monthly payments to repay what you owe – ideally within the interest-free period.


  • You don’t have to pay interest for the duration of the interest-free period
  • If used properly, this could be one of the cheapest ways to borrow money


  • You may be charged a fee to transfer your debt to a 0% credit card
  • The interest-free period doesn’t last forever
  • Depending on your level of debt and the credit limit you’re given, a credit card might not cover the full amount

Friends or family

The final option we’ll explore is lending money off friends or family members. Admittedly, this one isn’t everyone’s cup of tea and it comes with some important considerations – but if it’s a viable choice for you, it’s certainly not one to snub.

Things to consider

The last thing you want to do is burn bridges with your loved ones, so it’s key that:

a)  The friend or family member is in a financially stable enough position to lend you the money, without putting themselves in a tricky place.

b)  You’re confident that you’ll be able to repay what you owe without risk of the relationship turning sour.

c)  You clearly define some terms for the agreement, so that both of you know what to expect.

When we say you should set out some terms for the agreement, it needn’t be anything legally drafted. However, it is advisable to document, in writing, details like:

1)  How much money was exchanged

2)  How much you plan to repay and how often – £100 on the payday of each month, for example

3)  When the full amount of money is expected to be paid off by.

If either party forgets or misunderstands how the agreement is supposed to work, having something like this in place will help to prevent any potential disputes down the line.

Choose what works for you

So that’s our three debt consolidation options explored. As you should before taking out any line of credit, be sure to thoroughly research all available avenues before agreeing to any type of lending, and only ever take out what you can comfortably afford to repay.

Disclaimer: All information and links are correct at the time of publishing.

author: Bryony Pearce

By Bryony Pearce

Three ways to consolidate your debt Three ways to consolidate your debt