Consolidating debt is when you take out a single, new loan to pay off several existing debts. This can be a good way of taking control of your finances but you need to be careful. A consolidation loan may not always be your best option.

Before considering a consolidation loan
Before you decide on a consolidation loan, find out what's on offer and what alternatives you've got. These could include:
trying to make new arrangements with your existing lenders
checking that you're making the best use of credit options you've already got - such as an overdraft facility, credit or store cards, a personal loan or extension to your mortgage borrowing from relatives
You could also take advantage of the free advice that's available from debt counselling services such as National Debtline. (See 'Where to get help and advice' below.)
If you do decide to take out a consolidation loan, shop around for the best terms from a reputable lender. Building societies and banks may be able to offer you a personal loan.

Reasons to consider a consolidation loan Used carefully, a consolidation loan can help to put you back in control of your finances. The advantages can include:
you can use it to pay off your priority debts (for more about priority debts, see the link 'Which debts to pay off first' below)
you could pay a lower rate of interest - interest rates for borrowing money for a short while are usually very high (consolidation loans are longer term and may be better value than short-term borrowing)
your monthly payments might be lower
you know when you'll finish paying off the debt
you'll only have to make a single payment each month
you'll only deal with one lender
you may avoid falling behind on payments and getting a bad credit rating

Possible disadvantages of consolidation loans
Remember that there are some drawbacks too, such as:
you could end up paying more overall and over a longer period
you'll usually pay extra charges for setting up and repaying the new loan
if the loans you're consolidating had the interest added at the start, you'll be paying interest on that interest - as well as on the amount you borrowed
all your eggs will be in one basket - if you get into difficulties, it may be more difficult to come to a new arrangement with a single lender
if the loan is secured against your home your property will be at risk if you can't keep up payments