For anyone thinking of consolidating their debts, the recent figures from the Bank of England might not make pleasant reading. Their ‘Lending to Individuals: August 2008’ Statistical Release reveals that the increase in total net lending to individuals was much lower in August (£1.4 billion) than in July (£4 billion).

The problem is, many people need credit more than ever – levels of personal debt are at an all-time high in the UK, and many borrowers are urgently looking for the debt consolidation loans that could help them bring their debts under control once more.

Basically, a debt consolidation loan is a larger loan which lets the borrower pay off their existing unsecured debts all in one go. Rather than, for example, paying something towards an overdraft, two credit card debts, one store card debt and a personal loan, the borrower simply makes one monthly repayment to the lender who gave them the debt consolidation loan. So consolidating debts can make things simpler, helping borrowers stay on top of their debt and avoid the charges (and damage to their credit rating) that many lenders impose for late payments.

Simplicity, however, isn’t the only advantage. Debt consolidation loans often come with lower interest rates than other forms of debt (in particular credit & store card debt), especially if the individual consolidates their debts by securing them against property (i.e. through a secured debt consolidation loan or debt consolidation mortgage). In other words, the debt accrues less interest every month, so the borrower can put more money towards the debt itself, rather than towards the interest.

Finally, the third major advantage of a debt consolidation loan is its potential to reduce monthly debt repayments. Anyone’s circumstances can change, and the repayment terms that someone agreed to a year ago might no longer be realistic. If they simply can’t afford to keep making repayments at that level, a debt consolidation loan can give them a valuable opportunity to think through their finances and arrange to repay the debt more slowly, bringing their monthly debt repayments down to an affordable level.

As with any debt solution, it’s important to seek professional advice before committing themselves. A debt adviser can help them do the calculations and figure out how quickly they can realistically repay their consolidation loan – leaving some leeway in their monthly budget for any unexpected expenses that arise. They can also help them assess the impact of any foreseeable changes to their financial situation in the near future, and decide if a debt consolidation loan is actually the best debt solution for them.

Repaying a debt more slowly will, of course, mean that they’re in debt for longer and could end up paying more as the debt will accrue interest for longer, although this may be offset by the fact that the debt consolidation loan’s interest rate is lower. Whether or not this is a price worth paying is up to the individual – depending on their finances, it could well make more sense to make lower payments reliably (and for longer) than to struggle to keep up with higher payments and end up damaging their credit rating with defaults, late payments, even County Court Judgments (CCJs).

The best way to start tackling a debt problem is to talk to a professional debt adviser who knows how all the different debt solutions work – someone who can look at the individual’s situation and help them decide whether they’d be better off with a debt consolidation loan or with an alternative debt solution, such as a debt management plan or IVA (Individual Voluntary Arrangement).