A debt consolidation loan is a simple idea - a single loan that's large enough to pay off your existing debts. Different people do this for different reasons, but the most important benefits are straightforward: simplicity and affordability.

Simplicity
Repaying one debt is simply easier than repaying multiple debts. Every month, you'd have to make one payment to one lender, rather than paying different amounts to different lenders.

This makes your monthly payments easier to budget for: knowing how much you need for your single debt repayment should make it easier to figure out how much you can afford to spend on other things, without touching the money you need for your debt repayment.

Saving you time, consolidating your debts could potentially save you money as well, as you should (hopefully) be less likely to miss any payments - something which can lead to fines and damage your credit rating (which can, in turn, make obtaining further credit more expensive and/or harder).

And in the longer term, having just one debt also makes it a lot easier to see exactly what's left, in terms of time and money. You won't have to add up all your various balances just to find out how much more money you need to repay before you're debt-free - and how long it'll take you to get there.

Affordability
A debt consolidation loan could also give you a valuable opportunity to re-think your finances - to look at your income and expenditure and figure out what a realistic monthly repayment would be.

When you consolidate your debts with a new loan, you can arrange to repay it in a way that takes that figure into account. By repaying your loan over a longer period of time, you could significantly reduce the monthly payments.

There is, however, a downside to this. Debts accrue interest over time, so the faster you repay a loan, the less interest you'll pay - and the slower you repay it, the more interest you'll pay. For example:

Repaying a £5,000 loan over 3 years will cost you around £160 per month and around £5,700 in total.

Repaying a £5,000 loan over 6 years will cost you just £90 or so per month - but around £6,500 in total.

(These figures are based on the moneymadeclear calculator from the FSA (Financial Services Authority), and assume that you're paying 9% interest.)

In other words, it makes sense to arrange a repayment term that's short enough to keep the total cost down - but long enough to make sure you can afford the monthly repayments without stretching your monthly budget too thin.

Having said that, many people use debt consolidation loans to pay off high-interest debts such as credit cards and store cards (some of which can charge as much as 30% interest per year). So there's a good chance their consolidation loan will come with a significantly lower interest rate, and this can mean their debt will grow a lot more slowly than it would have if they'd carried on paying off their other debts.

A word of caution
As with any kind of loan, it's important to make sure you can afford the repayments before you take out a consolidation loan. A debt adviser can help you decide if debt consolidation really is a good idea for you, or if you'd be better off looking at other debt solutions.

And finally, be aware that some forms of credit will come with an ERC (Early Repayment Charge). This is a charge you'll have to pay if you repay the debt earlier than you (and the lender) expected. So before you take out a consolidation loan, you need to make sure you won't be charged for repaying any of the debts you're planning to pay off with it.