Managing credit card debt with a debt consolidation loan

People use credit cards for all sorts of reasons, from everyday spending to larger purchases. When borrowing is spread across multiple credit cards, keeping track of repayments, balances and interest rates can become difficult.

If you're looking for a simpler way to manage borrowing across multiple credit cards, debt consolidation may be worth considering.

In this guide, we'll explain how debt consolidation works, some of the options available and some things to be aware of.

Why managing multiple credit cards can be difficult

Many people use more than one credit card for different reasons, such as everyday spending, larger purchases or transferring an existing balance.

As borrowing builds up across several accounts, you may find yourself:

• making multiple repayments each month
• keeping track of different interest rates
• struggling to see the total amount you owe
• finding it harder to budget
• worrying about missing a payment

What is debt consolidation?

Debt consolidation is a way of combining existing debts into a single monthly repayment. Instead of managing several credit card balances, some people use a loan or another credit product to pay them off and bring their borrowing together into one monthly repayment. Depending on the interest rate and repayment term, debt consolidation could make borrowing easier to manage. However, it does not reduce the amount you owe. You're still responsible for repaying the debt, so it's important to understand the costs and commitments involved.

What are the main ways to consolidate credit card debt?

There are several options available, and the right choice will depend on your circumstances.

Balance transfer credit cards

A balance transfer card allows you to move borrowing from one or more credit cards onto a new card. Many balance transfer cards offer an introductory low-interest or 0% interest period, giving you an opportunity to focus on reducing your balance.

With a balance transfer card:

• introductory offers are usually time-limited
• transfer fees may apply
• you'll still need to make minimum monthly repayments
• interest charges may increase once the promotional period ends

Unsecured personal loans

An unsecured personal loan is a common way to consolidate credit card debt. You use the loan to pay off your credit cards, then repay the loan in fixed monthly payments over an agreed period. This can make it easier to manage your borrowing and budget each month.

With an unsecured personal loan:

• monthly repayments are fixed
• interest rates may be lower than some credit cards
• eligibility and rates depend on your circumstances
• repaying over a longer period could increase the total amount of interest paid

Secured homeowner loans

If you own your home and have a mortgage, you may be able to use a secured loan to consolidate debt. Because the loan is linked to your property, you may be able to borrow more or access different rates than with an unsecured loan.

With a secured homeowner loan:

• larger borrowing amounts may be available
• repayments can often be spread over a longer period
• repaying over a longer period could increase the total amount of interest paid
• your home is used as security for the loan
• missing repayments could put your home at risk of repossession

When might a debt consolidation loan help?

A debt consolidation loan may be worth considering if you're finding it difficult to keep track of multiple repayments, want more certainty over your monthly outgoings, or could benefit from a lower interest rate.

However, it's important to compare your options carefully before borrowing money to pay off your existing debts. If you take out a loan for debt consolidation, you could end up paying more in total, depending on the length of your loan and its interest rate.

Things to consider before consolidating debt with a loan

Before applying for any type of borrowing, make sure you understand the total amount you owe, the interest rates you're currently paying, any fees that may apply and whether the repayments are affordable for you. Taking time to review your finances can help you decide whether debt consolidation is the right option for your circumstances.

When to seek additional support

Consolidating debt can be helpful for some people, but it is not always the right solution. If you're struggling to make repayments, relying on credit to cover essential costs, or feeling overwhelmed by debt, you can access free and impartial support. Organisations such as MoneyHelper can provide guidance and help you understand the options available to you.

How Loans from Co-op can help

If you’re considering taking out a debt consolidation loan, Loans from Co-op could help you. With our partner ClearScore, you can compare loans from a panel of selected lenders and explore options that may meet your needs. Compare loans online without affecting your credit score.