What is a debt consolidation loan?

You can use a debt consolidation loan to pay off multiple existing debts, resulting in you only having one monthly repayment. It makes managing your debts simpler and helps you to keep track of your general monthly outgoings.

Secured vs. unsecured debt consolidation loans

Most debt consolidation loans are ‘unsecured’, meaning lenders approve applications based on your credit history. However, some are ‘secured’ against an asset, the most common being a house. If you choose a secured debt consolidation loan, you need to consider that the bank, building society or lender could seize your asset from you if you fail to make repayments.

Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

At Asda Money, we only provide access to unsecured debt consolidation loans.

How do our debt consolidation loans work?

At Asda Money, we provide access to personal loans that you can use for debt consolidation. They are always unsecured loans and are made available through a  carefully selected panel of trusted lenders.. With just one initial eligibility check, you’ll see all the available debt consolidation loans that match your requirements. We perform a soft search on your credit history, which won’t affect your ability to gain future credit.

Whilst we don’t offer a specialist debt consolidation product, the loans you see from our lender panel will be the ones that most closely match your requirements. It’s then up to you to compare all the available loans to find the one that works for you.

What are the benefits of debt consolidation loans?

• Streamlined finances: With all your debts combined into one loan, you only have one monthly repayment and interest rate to keep track of.
• Improved budgeting: A debt consolidation loan combines existing debts into one, making monthly repayments lower and easier to manage. This should reduce the risk of making late repayments or going into unarranged overdrafts.
• Improved credit rating: If a debt consolidation loan helps you keep track of your repayments, this may improve your credit rating. Paying all your debts off on time will prove to future lenders that you’re a responsible borrower.
• Reduced monthly repayments: A debt consolidation loan reduce your outgoings each month. This is because your new loan could have a lower interest rate than your current combined rate of the previous debts.
• Reduce the time to pay it off: With lower repayments, you may be able to pay extra each month. You’ll then reduce your loan more quickly.

What should I be aware of before I consolidate my debt?

Don’t borrow more than you need: When applying for a debt consolidation loan, be careful not to request more than you need. You’ll still need to repay the loan in the future, so it’s advisable to ask for the minimum you need to cover your other loans.

• You could increase your overall borrowing: Although a debt consolidation loan may save you money each month, the term may be longer. Be aware that you may be extending the debt term and increasing the total amount you repay when consolidating existing borrowing.
• The risk of missing monthly payments: Make sure you can afford the monthly repayment on your debt consolidation loan. If you miss any payments, it can negatively impact your credit score.
• Be careful not to increase spending: Borrowing on a debt consolidation loan and paying off credit cards may make it feel like you have more money available. It’s tempting to start using your credit cards again and increasing your overall debt.
• It doesn’t address underlying financial problems: Borrowing more money to pay off debts doesn’t tackle how you got into debt into the first place. If you don’t look at your financial and spending habits, it’s easy for debt to build up.

Difference between debt consolidation and debt management

These terms sound similar but refer to different things. ‘Debt consolidation’ means taking out credit through a loan to pay off your existing debts. ‘Debt management’ is when you work with a debt management plan provider to negotiate affordable payments with the companies you owe money to.

What can I use a debt consolidation loan for?

You can use debt consolidation loans to pay off existing debts and consolidate them into one easier-to-manage loan. Many people use them to pay off credit cards, personal loans, store cards or overdrafts.

Your interest rate or APR may be much higher on credit cards, store cards or through an overdraft than it would be with a debt consolidation loan. It may make sense to pay these debts off and secure a lower interest rate with one loan.

Debt consolidation with bad credit

You may have a poor credit score if you have existing debts and have previously struggled with repayments. This could affect your chances of getting a debt consolidation loan now. Some specialist lenders may offer you a loan, but the interest rate will likely be high.

Asda Money does not offer secured debt consolidation loans, but other lenders may. With a secured loan, the lender uses your assets (such as your home) as ‘security’. Remember, with this type of loan, you risk losing your assets or home if you default on your payments.

Looking for a loan to fund something specific? At Asda, we help you compare loans for everything from Weddings and Holidays to Cars and Home Improvements.