TL;DR
- Debt consolidation combines multiple debts into a single loan, typically to reduce interest or simplify repayments.
- Products include unsecured personal loans, 0% balance transfer cards, secured loans, and remortgage.
- A lower APR does not guarantee lower total cost if the consolidation loan has a longer term.
- Secured consolidation puts your home at risk if you cannot maintain repayments.
- Without changing spending behaviour, debt consolidation often increases total debt over time.
- Free debt advice is available from StepChange, Citizens Advice, and National Debtline.
Key Facts
What Is Debt Consolidation?
Debt consolidation combines multiple existing debts into a single new loan. The primary purpose is to obtain a lower interest rate, simplify to a single monthly payment, or both. Common debts consolidated include credit cards, personal loans, overdrafts, store cards, and buy-now-pay-later balances. Debt consolidation does not reduce the total amount owed: the principal debt is unchanged. Whether it saves money depends entirely on whether the consolidation achieves a genuine reduction in total interest paid over the full repayment period.
Types of Debt Consolidation
Unsecured personal loan: A personal loan is taken for the total of the debts, used to pay them off, leaving one monthly payment. Not secured against property. APRs from approximately 6.5% for good credit in June 2026; 20%+ for poor credit.
0% balance transfer card: For credit card debt, allows balances to be transferred to a new card at 0% for an introductory period (typically 12 to 30 months). A transfer fee of 1% to 3% typically applies. If fully cleared within the 0% period, no interest is paid. If not, the standard APR applies to the remaining balance.
Secured consolidation loan: Secured against the borrower property. Lower rates because the lender has security, but the property is at risk if repayments are missed. Used for larger amounts or where unsecured rates are too high.
Remortgage with consolidation: Adding unsecured debt to the mortgage. Mortgage rates are low but the debt is spread over the mortgage term (potentially 25 years) rather than a shorter period, and the property is at risk.
When Debt Consolidation Saves Money
Consolidation saves money when: the new loan APR is lower than the weighted average APR of existing debts; the repayment term is the same as or shorter than the remaining term on existing debts; and fees do not offset the interest saving. Example: 15,000 pounds of credit card debt at 25% average APR on minimum payments could take 20+ years and cost over 25,000 pounds in interest. Consolidating into a 5-year personal loan at 8% APR costs approximately 3,300 pounds in total interest and clears the debt in a defined term.
When Debt Consolidation Does Not Save Money
Consolidation fails when a lower rate is offset by a significantly longer term. Converting 15,000 pounds of credit card debt at 25% into a 20-year remortgage at 4.5% reduces the monthly payment dramatically but the total interest over 20 years may exceed what would have been paid on the cards in a shorter time if payments above the minimum were made. Consolidation also fails if the borrower continues using credit cards after consolidating, creating new debt on top of the consolidation loan. This is the most common cause of consolidation worsening rather than improving the debt situation.
The Risks
Securing unsecured debt against property means that failing to repay could result in losing your home, a consequence that did not apply to the original credit card debts. This is an irreversible step that should be taken only with full understanding of the implications and ideally after regulated advice. A consolidation loan with a longer term, even at a lower rate, may cost more in total interest. Always calculate the total repayable amount over the full term and compare it to the cost of paying off existing debts within the same timeframe.
Free Debt Advice
Before taking any consolidation product, speak to a free debt advice service. StepChange Debt Charity, Citizens Advice, and National Debtline provide free confidential advice and can assess whether consolidation is appropriate or whether alternatives such as a debt management plan, an IVA, or bankruptcy might better suit the circumstances. These services are FCA-regulated and have no commercial interest in the outcome.
Frequently Asked Questions
Does debt consolidation affect your credit score?
A new consolidation application creates a hard search visible for 12 months. Opening a new credit line changes utilisation and credit mix. Closing credit card accounts after consolidation reduces available credit and may affect the score. Long-term impact depends on whether the consolidation loan is repaid on time and whether total debt reduces.
Is debt consolidation a good idea?
It can reduce total interest and simplify repayments, but only if the consolidation loan has a lower APR and is repaid within the same or shorter timeframe than the existing debts. It does not work if the term is extended significantly, if fees offset the saving, or if new debt accumulates after consolidation.
Can I consolidate with bad credit?
Consolidation loans are available for poor credit but APRs will be higher, potentially above the average rate on existing debts. In this case consolidation may not save money. Free debt advice from StepChange or Citizens Advice can identify the best approach.
What is the difference between secured and unsecured consolidation?
Unsecured consolidation (personal loan, balance transfer) is not secured against property. Secured consolidation (secured loan, remortgage) uses the home as security, typically offering lower rates but putting the property at risk if repayments are missed.