Managing several debts can become difficult, particularly if you're juggling multiple repayment dates, interest rates and lenders. A debt consolidation loan may allow you to combine eligible debts into a single monthly repayment, which could make managing repayments simpler.
This guide explains how debt consolidation loans work, their potential benefits and drawbacks, who they may be suitable for and what to consider before applying. Whether you're comparing your borrowing options or simply researching how debt consolidation works, you'll find balanced information to help you make a more informed decision.
Key Takeaways
A debt consolidation loan combines multiple eligible debts into one new loan with a single monthly repayment
Consolidating debts may simplify budgeting, but it doesn't always reduce the total amount you'll repay
Your eligibility, interest rate and borrowing amount will depend on factors such as your credit history, income and affordability
Both secured and unsecured debt consolidation loans are available, depending on your circumstances
Comparing lenders carefully can help you find a loan that better suits your financial needs
What Is a Debt Consolidation Loan?
A debt consolidation loan allows you to combine multiple existing debts into one new loan, meaning you make a single monthly repayment instead of managing several payments to different lenders.
It may help simplify budgeting and make repayments easier to manage, but it does not automatically reduce the amount you owe or guarantee that you will pay less overall.
Rather than managing several repayments to different lenders each month, you make a single repayment towards your new loan.
People may use a debt consolidation loan to combine debts such as:
Credit cards
Personal loans
Store cards
Overdrafts
Catalogue accounts
Other eligible unsecured borrowing
The aim is often to simplify monthly budgeting. In some cases, borrowers may also secure a lower interest rate than they're currently paying, although this isn't guaranteed and depends on individual circumstances.
It's important to remember that a debt consolidation loan doesn't remove your debt. Instead, it restructures how you repay it.
Can You Consolidate Credit Card Debt?
Many people use debt consolidation loans to repay credit card balances because credit cards often have higher interest rates than some other forms of borrowing.
However, whether this saves money depends on the interest rate offered, fees involved and repayment term.
How Does a Debt Consolidation Loan Work?
When you take out a debt consolidation loan, the funds are typically used to pay off your existing eligible debts.
Once those balances have been cleared, you'll repay the new loan through fixed monthly repayments over an agreed term.
Instead of keeping track of multiple payment dates and varying interest rates, you'll generally have:
One lender
One monthly repayment
One interest rate
One repayment schedule
For many borrowers, this can make managing finances simpler.
However, it's important to compare the total cost of borrowing rather than focusing solely on the monthly payment. Extending the repayment term could reduce your monthly repayments but may mean paying more interest overall.
Example
Imagine you have:
£2,000 on a credit card
£3,000 personal loan
£1,500 overdraft
Rather than making three separate repayments each month, you could take out a £6,500 debt consolidation loan (subject to eligibility) to repay these balances and then make one monthly payment towards the new loan.
Whether this saves money depends on factors including the interest rate offered, loan term and any fees that may apply.
Compare Debt Consolidation Loans
What Are the Benefits and Potential Drawbacks?
Debt consolidation can be useful for some borrowers, but it also comes with costs and risks that should be considered before applying. Understanding both sides can help you decide whether this type of borrowing is appropriate for your situation.
Potential Benefits
Simpler money management: Making one monthly repayment instead of several can make it easier to keep track of your finances.
Fixed repayments: Many debt consolidation loans offer fixed monthly repayments, making budgeting more predictable.
Potentially lower interest rates: Potentially lower interest rates: Depending on your credit profile and existing borrowing, you may be able to secure a lower rate. However, this is not guaranteed.
Reduced financial administration: Managing one lender rather than multiple accounts may save time and reduce the risk of missing payment dates.
Potential Drawbacks
You may pay more overall: Lower monthly repayments can be appealing, but extending the repayment term may increase the total interest paid over the life of the loan.
Eligibility isn't guaranteed: Approval is subject to eligibility checks, affordability assessments and lender criteria. Not everyone will qualify.
Interest rates vary: The representative APR advertised may not be the rate you're offered.
Secured loans carry additional risk: If you use your home as security, failing to keep up repayments could put your property at risk.
Consolidation doesn't address the cause of debt: If spending habits remain unchanged and additional borrowing continues, debt levels could increase over time.
Who Could Benefit from a Debt Consolidation Loan?
Debt consolidation loans may be suitable for borrowers who are looking to simplify their repayments and manage existing borrowing more effectively.
For example, they may suit someone who:
Has several eligible debts with different repayment dates.
Wants one fixed monthly payment.
Can obtain a competitive interest rate.
Has a stable income and can comfortably afford the repayments.
Wants to organise their finances more efficiently.
When Debt Consolidation May Not be Suitable
Although a debt consolidation loan can help some people manage existing borrowing, it may not be the right option for everyone.
A consolidation loan may not be suitable if:
You are struggling to afford your existing repayments: If you are already missing payments or finding it difficult to cover essential living costs, taking on further borrowing may not address the underlying issue.
The new loan increases the total cost of borrowing: A lower monthly repayment does not always mean you will pay less overall. Extending the repayment term could mean paying more interest over time.
You are likely to continue borrowing: Consolidating debts may simplify your repayments, but continuing to use existing credit accounts or taking on further borrowing could increase your overall level of debt.
You cannot access affordable borrowing: If the interest rate offered is higher than the rates on your existing debts, consolidation may not provide a financial benefit.
You need additional support managing debt: If you are experiencing financial difficulty or struggling to maintain repayments, free independent debt advice may be more appropriate than taking on additional borrowing.
Before applying, consider whether debt consolidation addresses your current financial situation and whether the new repayments are affordable within your budget.
Can You Get a Debt Consolidation Loan with Bad Credit?
Having bad credit does not automatically mean you cannot apply, but lenders may consider you a higher risk. This could affect the interest rate offered, the amount you can borrow and whether your application is accepted.
Lenders typically consider a range of factors when assessing an application, including:
Your credit history
Existing financial commitments
Income
Employment status
Affordability
Overall financial circumstances
Borrowers with lower credit scores may:
Be offered higher interest rates.
Qualify for smaller loan amounts.
Need to provide additional information during the application process.
Improving your credit profile before applying may help you access a wider range of borrowing options. It's also worth avoiding multiple applications within a short period, as this could have a negative impact on your credit file.
Read More: Debt Consolidation Loans for Bad Credit: Options, Risks and What to Consider
Secured vs Unsecured Debt Consolidation Loans
When comparing debt consolidation loans, one of the main decisions is whether to choose a secured or unsecured loan.
The right option will depend on your circumstances, financial position and what lenders are willing to offer.
What Is an Unsecured Debt Consolidation Loan?
An unsecured debt consolidation loan does not use an asset, such as your home, as security.
Instead, lenders assess your application based on factors such as:
Your credit history
Income
Existing financial commitments
Affordability
Loan amount requested
Many personal loans used for debt consolidation are unsecured.
Potential advantages may include:
Your home is not used as security
Applications can often be simpler
Repayment terms are usually fixed
Things to consider:
Interest rates may be higher than secured borrowing
The amount you can borrow may be limited
Approval depends on your circumstances and lender criteria
What Is a Secured Debt Consolidation Loan?
A secured debt consolidation loan uses an asset, commonly your home, as security against the borrowing.
Because the lender has security, this type of borrowing may allow access to larger loan amounts or longer repayment terms for some borrowers.
However, there is an important consideration:
If you do not keep up repayments, your home or another secured asset could be at risk.
Before choosing a secured loan, it's important to understand the risks involved and consider whether it is appropriate for your situation.
What Should You Compare Before Applying for a Debt Consolidation Loan?
Choosing a debt consolidation loan is not just about finding the lowest monthly repayment.
A loan with a lower monthly cost may have a longer repayment period, meaning you could pay more interest overall.
Key factors to review before taking out a consolidation loan::
Representative APR
The Annual Percentage Rate (APR) shows the cost of borrowing, including interest and certain fees.
The representative APR advertised may not be the rate you receive, as the rate offered can depend on your individual circumstances.
Total Amount Repayable
Look beyond the monthly repayment and consider the total amount you would repay over the full loan term.
This can help you understand the overall cost of borrowing.
Loan Term
A longer loan term may reduce monthly payments but could increase the total interest paid.
A shorter term may cost more each month but could reduce the overall borrowing cost.
Fees and Charges
Check whether the loan includes:
Arrangement fees
Early repayment charges
Additional costs
These can affect the overall value of the loan.
Eligibility Requirements
Some lenders offer eligibility checks that allow you to explore potential options without making a full application.
Eligibility criteria may vary between lenders.
Explore different loan options and compare key features, including representative APR, repayment terms and eligibility requirements, before making a decision.
Compare Debt Consolidation Loans
Taking out additional borrowing is not always the right solution. If you are struggling with debt repayments, consider seeking free independent debt advice before applying for credit.
What Are the Alternatives to Debt Consolidation Loans?
A debt consolidation loan is not the only option available for managing existing debts. Depending on your circumstances, alternatives may include:
Balance Transfer Credit Card
A balance transfer card allows you to move existing credit card balances to another card, often with an introductory interest rate period. This may be worth considering for some borrowers, but it's important to understand the terms, including when promotional rates end and any applicable fees.
Debt Management Plan
A Debt Management Plan (DMP) is an arrangement that can help you manage repayments to creditors through a structured repayment plan. This may be suitable for people who are struggling to maintain existing repayments.
Free debt advice providers can help explain whether this option may be appropriate.
Budgeting and Repayment Strategies
For some people, reviewing spending, creating a repayment plan and prioritising higher-interest debts may help improve their financial situation without taking out additional borrowing.
Seeking Free Debt Advice
If you are experiencing financial difficulty or struggling with repayments, independent debt advice may be more suitable than taking on further credit. Organisations such as StepChange Debt Charity can provide guidance based on your circumstances.
Next Steps: Comparing Debt Consolidation Loans
If you're considering a debt consolidation loan, taking time to compare your options can help you understand what may be available.
Before applying, consider:
✓ How much you need to borrow
✓ Which debts you want to consolidate
✓ Whether the monthly repayments are affordable
✓ The total cost of borrowing
✓ Whether alternatives may be more suitable
Remember that approval, loan amounts and interest rates depend on individual circumstances, lender criteria and affordability assessments.
A comparison service can help you review different options and understand the features available before deciding whether to apply.
Ready to Compare Debt Consolidation Loans?
Compare available debt consolidation loan options and review key information to help you make a more informed borrowing decision.
Rates and approval are subject to status, eligibility criteria and individual circumstances.
Compare Debt Consolidation Loans
Debt Consolidation Loan FAQs
What is a debt consolidation loan?
A debt consolidation loan allows you to combine multiple eligible debts into one new loan, meaning you may only need to manage one monthly repayment instead of several.
Is a debt consolidation loan suitable for everyone?
A debt consolidation loan may be helpful for some people who want to simplify their repayments. However, it may not be suitable for everyone, and you should consider the overall cost of borrowing before applying.
Is debt consolidation a good idea?
Whether debt consolidation is a good idea depends on your circumstances, existing debts and the terms of the new loan. It may help simplify repayments by combining multiple debts into one monthly payment, but it does not automatically reduce the amount you owe. Consider the total cost of borrowing and whether the repayments are affordable before applying.
Will a debt consolidation loan reduce my monthly payments?
It may reduce your monthly repayments depending on factors such as the loan term and interest rate. However, paying less each month could mean repaying the debt over a longer period and paying more interest overall.
Can I get a debt consolidation loan with bad credit?
Some lenders may consider applications from people with poor credit histories, although options, rates and borrowing limits may differ depending on circumstances.
Does debt consolidation affect your credit score?
Applying for credit can affect your credit file, and taking out a new loan may influence your credit score. Making repayments on time may help demonstrate responsible borrowing behaviour over time.
Can I consolidate credit card debt?
Many people use debt consolidation loans to repay credit card balances, particularly where they are managing multiple cards or high-interest borrowing. However, whether credit card debt can be included will depend on the lender’s criteria and your circumstances.
What debts can I consolidate?
A debt consolidation loan can often be used to repay eligible debts such as credit cards, personal loans, store cards, overdrafts and catalogue accounts. The debts you can consolidate will depend on the lender’s criteria and your individual circumstances.
Is a secured debt consolidation loan risky?
A secured loan uses an asset, such as your home, as security. If repayments are not maintained, there is a risk that the secured asset could be affected.
How much can I borrow with a debt consolidation loan?
The amount you may be able to borrow depends on factors including lender criteria, affordability, income and your personal circumstances.
How long does debt consolidation take?
The time it takes to consolidate debt depends on the lender, application process and the debts being repaid. Once approved, eligible debts are typically cleared using the new loan, and you then make monthly repayments over the agreed loan term.
Glossary
APR: Annual Percentage Rate. A measure used to show the cost of borrowing, including interest and certain fees.
Affordability: A lender's assessment of whether you can reasonably afford loan repayments based on your income and financial commitments.
Credit Score: A score based on information in your credit report that lenders may use when assessing credit applications.
Debt Consolidation: The process of combining multiple debts into one repayment arrangement.
Loan Term: The length of time agreed to repay a loan.
Monthly Repayment: The amount paid each month towards repaying borrowed money and any interest.
Representative APR: The APR that a lender advertises and must offer to at least 51% of successful applicants, although individual rates may vary.
Secured Loan: A loan where an asset is used as security against the borrowing.
Unsecured Loan: A loan that does not require an asset to be used as security.
Related Guides
Explore related topics to further build your CreditKnowledge:
Is Debt Consolidation a Good Idea?
Debt Consolidation Loans for Bad Credit: Options, Risks and What to Consider
How Much Does a Loan Affect Your Credit Score?
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Editorial Disclaimer: This content is provided for general informational purposes only and should not be considered financial advice. It is not intended to provide personalised recommendations or guarantees of any outcome, including changes to your credit score or approval decisions from lenders. Credit scoring models and lending decisions vary between providers and are based on a range of factors.
This content reflects general information at the time of publication and is not endorsed by any bank, lender, or financial institution. You should always consider your own circumstances and, where appropriate, seek independent financial advice before making financial decisions. Nothing in this content should be interpreted as a recommendation to take, or refrain from taking, any specific financial action.
Page Last Reviewed: 20.07.2026