Consolidating your debts with a personal loan has its pros and cons. Putting all your eggs in one basket can be a convenient way of becoming debt-free, but is it the cheapest way of doing it?

If you have built-up debt with several credit products:credit cards, store cards, overdraft and;

  • Maybe your monthly repayments are a struggle to meet
  • The interest ratesare high,so your debt is reducingslowly because you can only afford torepay the minimum
  • You’re being asked by your lender to make increased payments on your credit cards*


*Those paying the minimum monthly credit card repayments for more than 18 months, will be classed as being in persistent debt and are contacted by lenders and urged to pay more per month off their debt

The option of a personal loan to pay all your debts off in one go could be appealing. It means you make one payment, rather than several payments to different cards, and the debt starts reducing straightaway.

Plus, if you are eligible,and through plenty of research, you could save 000’s in interest, especially as a loan provides a fixed time you are borrowing the money for.

It’s not just credit and store cards. It’s also worth looking at consolidating your overdraft if it’s large and expensive.

The discipline rule – consolidating debts takes discipline

If you are applying for a loan to consolidate several credit or store cards, or an overdraft, you must plan your repayments to ensure you don’t need to use these lines of credit again. Or be disciplined to use them very carefully, to avoid running debt on them straight back up.

Ideally, once you receive personal loan cash to clear your debts, pay them off, then contact your lender and close your accounts, or in the case of an overdraft, drop it to £0.

There are other options of course, such a 0% money transfer cards to reduce your overdraft and 0% balance transfer cards for your credit or store cards -it’s seeing which one works best for you.

ALSO READ: How to transfer to a lower rate credit card or 0% balance transfer

When using credit to pay off credit – really do your research

Using a loan to pay of debt on your credit products can be a reasonable way to cut the cost of your debt.

Before you apply though, conduct research, comparisons and eligibility without it making a negative footprint on your credit report.  There are online tools, such as MoneySavingExpert’s Loans Eligibility Calculator this will do just a soft search of your credit report.  These tools let you see your chances of getting the amount you need to pay off your existing debts.

Just always be mindful of the interest rates.  Representative APRs means that only 51% of people accepted for that loan need to get the headline rate, the rest can be accepted for the loan but offered a higher interest rate.

ALSO READ: What is persistent debt? And 2020 new rules for lenders’ ‘persistent debt’ customers.

If consumers are concerned about persistent credit card debt and/or have multiple credit cards they are dealing with, they can find information about free debt advice from National Debt Helpline, StepChange, or Citizens Advice

NOTE: The Financial Conduct Authority (FCA) has introduced rules that mean providers must grant a minimum three-month repayment freeze to anyone struggling to pay their credit card debts due to the coronavirus pandemic.