Simplify your debts

Overwhelmed with lots of debt in lots of places?

A debt consolidation loan could roll your debt into one monthly payment. 

You'd get one bigger loan to clear your other debts – from credit card debt to an overdraft or other loans. 

The pros of a debt consolidation loan:

• It could be simpler to manage your money – you'll have just one monthly payment. (This is usually easier than juggling different payments that leave your account at different times.)
• You'll pay the same amount each month – the interest rate is fixed, so it won't change. This helps you know where you are with your finances.
  
• At the end of the loan, you'll have cleared this debt (as long as you keep up with repayments) – this could be easier to manage than an overdraft where it could be easy to stay overdrawn. Or credit cards, where it could be tempting to pay just the minimum each month and continue spending. 
• You'll often pay less each month – if you spread your loan over a number of years, your payments could cost you less each month.
• You could save money - if the interest rate on your current debt is more expensive than the debt consolidation loan, the debt could cost you less.  

The cons of a debt consolidation loan:

• You're not debt-free. You've just moved your debt – you've replaced lots of different debt with one loan. If you don't manage your money well, you could end up in even more debt.
  
• Currently got a loan? There might be an early repayment fee – you could save money if your new loan has a lower interest rate. But if you're closing an existing loan, there might be an early repayment fee. So remember to include this in your calculations.
• The loan could cost you more overall – you may pay less each month,  but the total cost might be more expensive due to interest. This depends on your circumstances. Including how much your borrowing cost before, what your new borrowing rate is, and how long you borrow for.
  
• You must pay back your loan in full each month – unlike a credit card, you can't just pay the minimum. You must pay all your monthly payment. If you don't, you could be charged a fine. It could also harm your credit score, which could make it harder to borrow in future.
• You need to address why you got into debt - if you're struggling to stay on top of your debts, one large debt might be hard to pay back too. You might need to change your behaviour or circumstances to get debt-free for good.
  
  

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A debt consolidation could help you seize control of your finances

It could make things simpler as, rather than juggling lots of different debt, you'll just have one loan.

You'll also pay back the same amount each month at the same time, so it's easy to keep track.

Then – at the end of the loan – you could be debt-free. 

But please take care... 

A debt consolidation loan doesn't clear your debt. It just moves it.

To become debt free, you'd need to pay off this one bigger loan and not borrow anything else on top. 

This often means you need to look at the reason you got into debt in the first place – and tackle this.

Want free, confidential money help?

If your debt is stressing you out, it could help to chat to debt experts.

We work with PayPlan who offer free independent debt help.

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Checking if you could get a loan from us won’t affect your credit score

We just do a ‘soft search’. This won't show on your credit file.

If we say ‘yes’ and you choose to apply, we’ll do a ‘hard search’

This shows on your credit file and could affect your credit score for a short time.

Having a loan could help boost your credit score – or lower it:

• When you first get a loan, it could lower your score for a bit – this could happen when you do a hard credit search, or borrow more.
• After time, your credit score could be boosted – if you pay your loan back on time, this usually boosts your credit score, which could make it easier for you to borrow.

Can I consolidate debt if I have a lower credit score? 

Yes, you might be able to consolidate debt with a lower credit score.  It depends on how low your credit score is – and which lenders you approach.

Want to know if we’d give you a debt consolidation loan?

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Debt consolidation and debt management are two ways to handle debt. Is one of them right for you? Carry on reading…

• Debt consolidation – got debts in different places? With debt consolidation, you could roll your debts into one monthly payment.  You do this with a new loan or credit card, which you use to pay off your existing debts. This could make it easier to manage your finances. You could also save money if you’re charged less interest.
• Debt management – struggling to pay back what you owe? A debt management plan (or DMP) might help. You’d ask a debt charity or a debt management agency to negotiate with your creditors (the companies you owe money to). They’ll try to get your creditors to accept lower payments. If successful, you’d pay one monthly payment to the debt charity or management agency – and they’ll share this with the companies you owe.

Both debt consolidation and debt management have pros and cons. It’s important you weigh up your options carefully before going ahead with either.

Want free, independent money help?

If you're not sure what to do about your debt, it could help to chat to debt experts.

We work with PayPlan who offer free and confidential debt help.

Get free money advice 

So, which is best? A debt consolidation loan or a balance transfer card?

It depends on things like:

• What you owe and the type of debt.
• How you want to pay back what you owe.

A debt consolidation loan could be right for you if:

• You have different types of debt you want to pay off with your new loan – from loans and credit cards to an overdraft. You could potentially borrow more than with a balance transfer card.
• You want to pay the same amount each month for an agreed number of years – you can relax knowing that, when your loan ends, you’ll have paid off this debt.

What you should know about debt consolidation loans:

• You may have to pay a fee to clear your loan early.
• You may get a lower interest rate. But if you spread the cost over longer, it could still cost more overall.

A balance transfer card could be right for you if:

• You only have credit card debt –  what’s more, you can usually borrow less than with a debt consolidation loan.
• You’ll pay off debt while you have your offer – most balance transfer cards come with an introductory offer, like 0% interest for a set number of years. When it ends, the interest rate usually shoots up.  

What you should know about balance transfer credit cards:

• You’ll usually have to pay a balance transfer fee upfront to move your debt.
• If you get a 0% interest offer, it's an introductory offer – when it ends, you'll pay standard rates. 

Is debt consolidation better than using savings to repay debt?

It could be better to use your savings. But it depepends.

Using your savings could be better if:

• You can save money – debts usually cost more than savings earn. So, check: is the interest for your debt more than you earn for your savings? If so, you’ll save money if you use your savings to pay off what you owe.
• Your savings aren’t locked away – is there a penalty to access your savings? If so, figure out the extra cost. It might not be worth it to use your savings.
• You want to be debt-free – even if you don’t save money by using your savings, you might gain peace of mind by using them to pay off what you owe. Sometimes, this is worth more than money.

Using a debt-consolidation loan could be better if:

• You can save money – does your loan have super low interest? If the interest is less than what you earn in savings, a debt consolidation loan could be a good idea.
• You want the reassurance of having an emergency fund – experts often recommend an emergency fund of three to six months’ essential bills. This could be a handy safety net if you lose your job, or you’re hit by an unexpected bill. But, financially, it could still be better to pay off your debt with savings.

Debt consolidation could make sense if:

• You want the simplicity of one monthly payment – with debt consolidation, you roll your current debt into one new loan. So you don’t pay different payments with different interest rates to different lenders. You have one loan from one lender. And you pay the same amount back each month, so you know where you are with your finances.
• You want to know when you’ll be debt-free – with a loan, you have the confidence of knowing when you’ll pay back what you owe. This can make it easier to manage your finances.
• You can get a lower overall interest rate – if you pay less interest, it will be cheaper to pay back what you owe. Otherwise, it will cost you more overall.
• You can pay back what you owe without paying for a lot longer – sometimes it might make sense to spread what you owe over a longer time, so you pay less each month. This could make your debt more manageable. But the longer you take to pay, the more interest you’ll pay – meaning you’ll pay more overall.
• It doesn’t lead to more debt – if you pay off your credit card debt with a new loan, it could be tempting to run up credit card debt again. You might find it helpful to close any credit cards, so there's no temptation. Or you could reduce your credit limit.  You might be helpful to get free debt advice first. Get free money advice.

What are the risks of debt consolidation?

• It could cost you more – usually debt consolidation means you pay less each month. This could be because the interest rate is lower (cheaper). But it could be because you choose to spread your debt over a longer time. If you take longer to pay, you’ll pay more interest overall, so it will cost you more. Remember to look at the total you’ll repay, not just your monthly payments. That way, you’ll know the total overall cost. For the actual payments and cost, get your personalised quote. 
  
• You could pay hidden fees – a NatWest loan doesn’t have hidden fees, like arrangement fees. But some other debt consolidation loans might. So, remember to factor these fees in. At NatWest, like many lenders, we charge early repayment fees. So, you’ll pay a fee to end your loan early.
• You could lose your home, or asset – NatWest debt consolidation loans are unsecured. But some debt consolidation loans, like homeowner loans, are secured against your property, or other asset. If you can’t keep up with your payments, your home, or other asset, could be taken.
• You could lower your credit score – often the higher your credit score, the cheaper it is to borrow. If you get a new loan, you’ll have to do a hard credit check. This will cause a temporary dip in your credit score. Over time, if you pay on time and keep up payments, your credit score will increase. But if you miss even one payment, this could damage your credit score.
• You could be tempted to run up more debt – if you use your debt consolidation loan to pay off your credit card debt, you’ll free up your credit card. Unless you’re disciplined, you could rack up more credit card debt on top of your debt consolidation loan. 

Debt consolidation could lower your monthly repayments if:

• You pay less interest – if you move your debt from expensive credit to cheaper credit, you could save money.
  
• You don't have expensive fees – make sure you factor any fees you need to pay, like early repayment fees to close existing loans.
• You spread the cost over a longer time – if you increase the amount of time you pay your loan back, you’ll pay less each month. However, you’ll pay more interest. So your loan will cost more overall.

Can I consolidate debt without increasing what I pay overall?

Yes, you could consolidate debt without paying more overall if your new interest rate is lower than before. Remember to also factor in any fees, like arrangement fees.

Take care…

The longer you take to pay, the more interest you’ll pay – so you need to make sure you’re looking at the total cost of the loan.

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Can debt consolidation help if interest rates have gone up?

Debt consolidation could still help if interest rates have gone up, but it depends.

• Could you get a cheaper interest rate? Even if interest rates have gone up, your new loan might still be cheaper. It depends on how much interest you’re currently paying. To figure out if it’s worth it, compare with the average interest rate across all your current debts. To calculate your current average interest rate, add up the interest rate on all your debts, then divide by the number of debts you have.
• Do you have early repayment fees? You might have early repayment fees if you have loans that you pay off early. Don’t forget to factor these into your calculations.
• Could you make your monthly payments more affordable by paying back for longer? If you pay your loan back for longer, you’ll pay less back each month. But this means you’ll pay more interest overall, so the total cost will be more.

Can I consolidate debt without increasing what I owe overall

Yes, you could consolidate without increasing what you owe overall if:

• You pay less interest including any fees – if you move from expensive debt to cheaper debt, you could save money. Just remember to include any fees, for example arrangement fees or early repayment fees.
• You don’t take longer to pay your debt – if you take longer to pay, you’ll pay more interest overall. But the total cost could still be less if you pay a lot less interest. To see the overall cost of your debt consolidation loan, check your quote.
• You don’t borrow more – if you take the opportunity to add more money to your debt consolidation loan, it could increase what you owe overall. It all depends on the total interest you pay. 

Yes, debt consolidation could help you simplify your credit card debt because you'll:

• Have just one monthly payment – if you’ve got lots of credit cards, money could leave your account at different times. So, it could be hard to seize control of your finances. With a debt consolidation loan, you’ll have one payment that leaves your account at the same time each month.
• Pay the same each month – if your debt consolidation loan has fixed interest, like ours does, you’ll pay the same amount each month. This is unlike credit card debt which often has a variable interest rate (interest rate that changes). Different credit cards often have different interest rates. So if you’ve got lots of cards, it could be hard to keep track of what each card charges in interest.
• Know when you’ll be debt-free – with a debt consolidation loan, you’ll have an end date in sight. So, you'll have a date to aim for when you'll be debt-free. This is unlike a credit card. A credit card is “revolving credit”. So you repeatedly borrow, pay back what you owe, then borrow again, without having to apply again. This means that some people find it very tempting to borrow on credit cards. With a credit card, you can choose to pay only the minimum amount each month. If you only pay the minimum, it could be hard to pay off what you owe and become debt-free.