In its simplest terms, a debt consolidation loan will pay off your existing debts and transfer the monies owed into one loan with one manageable, monthly repayment. You will still have to pay back all the monies owed, but with a debt consolidation loan you may be able to reduce your monthly outgoings, pay a lower rate of interest, or be able to spread the costs out over a longer time period.

If you are careful about managing your spending, a debt consolidation loan can help by:

• Reducing your monthly payments
  
  By spreading out the term of the debt you will often be able to reduce your monthly repayments to a manageable level. Most people are often paying the ‘minimum payment’ allowed on the existing debts. This often just means covering the interest component of the loan while leaving the actual total amount owed unchanged.
  
  
• Improve your credit rating
  
  If you are able to pay off the loan and accrue no further debt, this will be seen as a positive impact on your credit rating
  
  
• Reduce the interest you pay
  
  If your debts are with store or credit cards that have a high interest rate, then you will generally pay back less interest on your debt with a loan. Make sure you stop spending on your cards though.