What is debt consolidation?

If you were asked, without checking any paperwork, to detail how many loans and credit cards you have and the total amount of money you owe, chances are you’d struggle. 

Many people would. 

It’s also unlikely that most of us could confidently list the due dates for each payment or know exactly when we’ll finally be free of debt, assuming we pay everything on time. 

In many households, debts large and small are scattered across several different lenders, and unless you are exceptionally organised, that can become confusing and costly. 

Even a single missed payment can trigger penalties and lower your credit score. 

There are legitimate reasons to hold more than one credit card. For example, your preferred card might offer excellent perks – such as frequent-flyer points, airport lounge access, or shopping discounts – yet still not be accepted everywhere, prompting the need for a backup.

Credit cards can be excellent financial tools when used responsibly, especially if you consistently take advantage of interest‑free periods and clear the balance before charges begin. 

However, not everyone does this. Some people treat their credit limit as a target rather than a safeguard, and once a balance begins carrying over, interest rates – often above 20% – can quickly turn manageable debt into an expensive burden. 

If you find yourself unlikely to pay off these debts anytime soon, refinancing may be worth considering. 

The idea is simple: combine all your existing debts – credit cards, car loans, and personal loans – into a single consolidation loan with a fixed, lower interest rate. 

This can make managing your financial obligations far easier by replacing multiple repayments with one predictable instalment and giving you a clear end date for clearing your debt. 

It also means dealing with one lender instead of juggling several accounts. 

However, refinancing is not without potential drawbacks. In some cases, the consolidation loan may offer no financial benefit at all and could even leave you paying more in the long run. 

It’s important to proceed carefully, ensuring you’re dealing with a reputable lender and taking the time to read all documents thoroughly. 

Be cautious of any arrangement that requires you to secure the loan against an asset such as your car, as this could put it at risk. 

Make sure you understand the interest rate, all associated fees, potential penalties and the full term of the loan before signing anything. 

After consolidating your debts, it may be wise to reduce the limit on your credit cards or close them entirely to avoid slipping back into the same situation. 

While refinancing can offer relief and clarity, it requires careful thought and informed decision-making. Always consider seeking advice from a qualified and registered financial professional to ensure it aligns with your personal circumstances and long‑term goals.