Tempted to borrow to pay off your debts?

January is a long month between paydays for many of us and rolling up outstanding arrears on household bills and unmanageable loan or credit card repayments must be ever more tempting. But be careful, debt consolidation loans won’t suit everyone and they can even prove rather dangerous.

Creditors usually offer debt consolidation loans secured on mortgaged property and they can seem an attractive way of rearranging existing credit repayments down to one lower monthly payment.

Many lenders provide debt consolidation loans to borrowers with equity in their homes and whose household budget shows there is a surplus available each month to service the new loan repayments.

Points to consider
It’s vital to know that failing to make repayments on a secured loan can lead to loss of home through possession proceedings in the county court.

It’s also important to realise that a debt consolidation loan will have to cover existing contractual interest and any early-settlement penalties on loans you want to wrap up in the new agreement – and that the consolidation loan will bring its own interest to inflate the new balance.

Pros and cons of debt consolidation loans
Here are the good and bad points. Consider them carefully before making any decision.

  • Good way of safeguarding valuable assets (like your home) when dealing with creditors threatening bankruptcy Can re-establish a good credit history if repayments are made promptly and in full each month
  • You can lose your home if you don’t meet contractual repayments and the lender takes court action and sell it to pay off your loan
  • You will pay further interest on the new loan to cover interest and charges already added to those loans you want to consolidate and so owe more in total
  • It will take longer to repay your debt as payments will be spread out over an increased period
  • It may be more difficult to re-negotiate lower repayments if you experience further financial difficulties

Debt consolidation loans are only for the direst of circumstances as you risk losing your home if you can’t make the payments fully and on time.

It’s probably better to see if you can shift your debts onto a “balance transfer” credit card that has a 0% APR so that the debt remains unsecured, your property stays safe and you have time to repay a balance that should not increase any further.


  • Good for avoiding bankruptcy threats
  • Can help rebuild a good credit history
  • Can make monthly repayments more affordable
  • Can lose you your home if you don’t keep up repayments
  • Increases the length of the overall debt repayment period
  • Adds interest on top of interest and increases the total owed
  • Harder to renegotiate if things go wrong again

Seek advice
If your debt situation is really out of control, you can access free advice from Community Legal Advice or your local Citizens Advice Bureau.

(This article is based on journalistic research. It does not constitute financial advice. Any information should be considered in regard to specific circumstances. All tips are followed at your own risk and should be followed up with your own research.)


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