Should I consolidate my two debts?

Q I have got a credit card and owe ?6,400 at 0.6% per month. I pay ?200 per month towards this. I also have a loan on which I owe ?3,400 and which I am repaying at ?147 per month. Do you think I should get one loan to pay these two off?

MM

A What would you hope to achieve from combining the two loans? If you are looking for a lower monthly payment then bear in mind that this means you will be paying back your debts over a longer period. Taking out a personal loan would mean you were tied into making instalments over a set period, which could be as long as five years.

In addition, you are unlikely to find a personal loan offering as low a rate as the 0.6% you have on your credit card at present. Indeed, even the most competitive personal loans won't beat that rate of interest. At the rate you are paying, most of the money will be going towards paying off the debt, rather than just the interest, which is a very good policy.

The alternatives are not so attractive. For example, an unsecured loan for ?5,000 over three years from Northern Rock will cost you ?153 a month (interest rate 6.9%) while the same deal from Nationwide will be ?155 a month (interest rate of 7.9%). These rates, which are best buys at present, are higher than the ?147 per month you are paying on your loan at present.

There would be no sense in taking out a more expensive loan at a higher rate of interest when you seem to have found a good deal already. You don't say how much you earn or whether you are finding it a struggle to repay the debt. If you are having difficulties repaying your loan, it may be worth talking to your provider to suggest that they freeze the interest and allow you to pay off the capital. Lenders often prefer to have the debt repaid than for you to default.