Consolidating your debts involves borrowing money, and creating new debt, to repay your existing debt. This option is viable because the payments on the new loan will be less than you are currently paying towards clearing your existing debts.The problem with these new lower payments though is that your term of repayment can be increased dramatically, along with your total repayment amount.

Things to be wary of:

• Debt consolidation companies who push for you to take out their additional insurance policies to accompany the loan. While certain cover is necessary and highly advisable, you will almost certainly get it cheaper if you buy it separately rather than bundled in.
• Not fully understanding the implications and not being able to access new borrowing at a low rate of interest can lead to worsening debt and sometimes even potential homelessness. It is vital that you are aware of the downsides if you are considering debt consolidation.
• Profit maximising debt management companies who are more concerned with their balance sheet than ensuring that a consolidation loan is right for you.
• The seemingly kind-hearted companies that offer a service regardless of the state of your credit rating. The interest rates can be astronomical.
• High interest debt consolidation loans secured on your property, companies may push this option as it is win-win for the lender. Repayment means that they benefit from the higher interest charges, and if you default, they can repossess your home and get their money back early.