If you want to lower the amount of money you’re spending each month and/or simplify your finances, you may be able to do so with a debt consolidation loan.

A debt consolidation loan simply involves repaying your existing unsecured debts in one go – leaving you with just one debt to repay to one creditor. You could also arrange to repay this loan over a longer period of time – which can help to reduce the amount you pay each month.

Of course, any debt solution has its good and bad points, and we’re going to take a look at some of the pros and cons of debt consolidation now.

Debt consolidation – pros

• Arranging to repay your loan over a longer timeframe than your original debts can allow you to pay less each month.

• A debt consolidation loan could help you avoid damaging your credit score. This is because making one payment each month should make it easier for you to keep track of your finances (as a whole) and ensure you’ve got enough money set aside to cover your payment each month.

• If you choose to consolidate debts with a high interest rate (from credit cards, for example), you could considerably reduce the amount of interest you’re paying (providing the rate on your consolidation loan is significantly lower than the rates on your ‘old’ debts). This basically means your debt won’t grow as fast while you’re repaying it.

Debt consolidation – cons

• A debt consolidation loan won’t lower the amount of debt you have to repay – in fact, you’ll owe just as much as you did before, but it should be easier to manage.

• Arranging to repay your debts in smaller chunks means it will take longer for you to repay the money you owe.

• If you arrange to spread your loan repayments out over a longer timeframe, you could pay more interest than you would have done repaying your ‘old’ debts as they were, since your debt would simply have longer to accrue interest.

It’s important to bear in mind that debt consolidation won’t be right for everyone. So, someone with an erratic income, someone who can’t consolidate all their debts or someone who doesn’t think they’ll be able to repay their debt consolidation loan may find that a different approach could be more appropriate for them.