There a number of advantages and disadvantages of consolidation. Their relevance will very much depend on your individual circumstances. We consider the advantages first.

Consolidation Advantages

1. Credit rating not effected
Consolidation simply means that you are paying off a number of loans with one larger one. As such, non of the older debt agreements are being broken and your credit rating will not be negatively effected in any way.

2. Monthly payments reduced to affordable amount
The monthly payment amount of the consolidation loan will be smaller than the sum of the payments of the old consolidated loans. This is particularly the case with secured loans which are paid over a much longer period than unsecured loans.

3. Fast Implementation
A loan can generally be arranged swiftly meaning that monthly payments can be reduced fast meaning you get your finances back under control swiftly.

Consolidation Disadvantages

It is important to understand that as well as benefits consolidating your debts can also have some disadvantages. Before making a decision to take a consolidation loan you need to understand these in the context of your circumstances.

1. Overall debt increased
If you borrow money to consolidate debts, you will be charged interest on the new loan. As such, it is likely that your overall debt will increase.

2. Mortgage secured against your home
A mortgage or secured loan will be secured against your home. This means that if you find yourself unable to repay the loan in the future, your house wil be at risk of repossession.

3. Debt may become worse if your spending habits do not change
Taking a loan does not force a change in spending habits. Therefore it is easy to continue to use other forms of credit such as credit cards and get into trouble again.