Debt consolidation isn’t right for everyone. Sometimes it makes things worse. In this post, I’ll explain exactly what debt consolidation is, when it works, when it doesn’t, and whether you should do it.

What Is Debt Consolidation?

Debt consolidation means taking out one new loan to pay off multiple existing debts.

Instead of juggling several credit cards, loans, or overdrafts, you make one monthly payment.

Example:

Before consolidation:

• Barclaycard: £3,000 at 21.9% APR (£90/month)
• Amex: £2,500 at 24.9% APR (£75/month)
• Overdraft: £2,500 at 39.9% APR (£80/month)
• Total: £8,000 across 3 debts (£245/month)

After consolidation:

• One loan: £8,000 at 9.9% APR (£170/month)
• Saves £75/month and £2,400+ in interest

The goal is to:

1. Reduce your interest rate
2. Lower your monthly payment
3. Simplify your finances
4. Clear debt faster

Types of Debt Consolidation

1. Personal Loan

Take out an unsecured personal loan to pay off all your debts.

Pros:

• Fixed interest rate
• Fixed monthly payment
• Clear end date
• Often much lower rates than credit cards

Cons:

• Need decent credit score
• May have setup fees
• Fixed term means you can’t pay less if you struggle

Best for: People with multiple high-interest debts and good enough credit to get approved.

2. Balance Transfer Credit Card

Transfer all credit card balances onto one card with 0% interest for a set period (usually 18-29 months).

Pros:

• 0% interest for the promotional period
• Can save thousands in interest
• No approval needed if you qualify

Cons:

• Usually 3-4% transfer fee
• Need good credit score
• If you don’t clear it before 0% ends, you’re back to high rates
• Only works for credit card debt

Best for: Credit card debt you can realistically clear within the 0% period.

3. Homeowner/Secured Loan

Borrow against your home to pay off unsecured debts.

Pros:

• Lower interest rates
• Can borrow larger amounts
• Easier to get approved

Cons:

• Your home is at risk if you can’t pay
• Longer terms mean more interest overall
• Fees can be expensive
• Turns unsecured debt into secured debt

Best for: Homeowners with large debts who can definitely afford repayments. High risk – get professional advice first.

4. Debt Management Plan (DMP)

Not technically consolidation, but your debt charity negotiates with creditors to accept one affordable monthly payment that they distribute.

Pros:

• Free through charities like StepChange
• Creditors often freeze interest
• Flexible – can be adjusted or cancelled

Cons:

• Takes longer to pay off
• May affect credit score
• Not legally binding

Best for: People struggling to afford current payments who need help negotiating with creditors.

When Debt Consolidation Works

Consolidation makes sense when:

✅ Your Interest Rates Will Go Down

If you’re paying 20%+ on credit cards and can get a consolidation loan at 8-12%, you’ll save money.

Example:

• £10,000 at 23% APR paid over 5 years = £17,430 total
• £10,000 at 10% APR paid over 5 years = £12,748 total
• Saves £4,682

✅ You Can Afford the New Payment

The new monthly payment must fit comfortably in your budget. If it’s tight, you’re setting yourself up to fail.

✅ You Won’t Use the Credit Cards Again

This is critical. If you consolidate and then run up the credit cards again, you’ll have:

• The consolidation loan
• New credit card debt
• Double the problem

I’ve seen people do this. Don’t be that person.

✅ The Total Cost Is Lower

Work out the total you’ll pay with consolidation vs without it.

Sometimes a lower monthly payment means a longer term, which means more interest overall.

Example:

• £8,000 debt paid over 3 years at 20% = £11,600 total
• £8,000 consolidation loan over 5 years at 9% = £10,070 total (saves £1,530)
• £8,000 consolidation loan over 7 years at 9% = £11,180 total (saves only £420)

Longer isn’t always better.

✅ You’re Organised Enough to Stick to It

Consolidation requires discipline. You need to:

• Make payments on time every month
• Not take on new debt
• Stick to your budget

If you’re not ready to commit, consolidation might just be delaying the inevitable.

When Debt Consolidation Doesn’t Work

Avoid consolidation if:

❌ You Can’t Get a Lower Rate

If your credit score is poor, consolidation loans might have rates just as high (or higher) than your current debts.

Example: You have £6,000 at 22% APR. You get offered a consolidation loan at 25% APR.

Don’t do it. You’re making things worse.

❌ You Haven’t Fixed the Underlying Problem

If you got into debt through overspending, gambling, or financial chaos, consolidation won’t fix that.

You’ll just end up in debt again.

Sort out the root cause first:

• Make a proper budget
• Cut unnecessary spending
• Get help for gambling/addiction issues
• Learn to track your money

Then consider consolidation.

❌ You’re Struggling with Priority Debts

If you’re behind on rent, council tax, or energy bills, don’t consolidate non-priority debts.

Pay priority debts first. Get free advice from StepChange or Citizens Advice.

❌ The Fees Are Too High

Some consolidation loans have:

• Application fees
• Early repayment charges on your current debts
• Arrangement fees
• Payment protection insurance (never buy this)

If the fees eat up your savings, it’s not worth it.

❌ You’re Close to Paying Off Your Debts Anyway

If you’ve only got 6-12 months of debt left, consolidation might not be worth the hassle and fees.

Just keep going with your current plan.

How to Consolidate Debt (Step-by-Step)

If you’ve decided consolidation is right for you, here’s how to do it properly:

Step 1: List All Your Debts

Write down:

• Who you owe
• How much
• Interest rate
• Current monthly payment
• Any early repayment charges

Step 2: Check Your Credit Score

Use free services:

• ClearScore
• Experian
• Credit Karma

Your score determines what rates you’ll be offered.

Step 3: Work Out How Much You Can Afford

Be realistic. Your new payment should be comfortable, not stretching you to breaking point.

Use your budget from the main debt guide [link to post 1].

Step 4: Compare Consolidation Options

For loans:

• Check comparison sites (MoneySuperMarket, Compare the Market, Money.co.uk)
• Check your own bank first
• Look at credit unions (often better rates)

For balance transfer cards:

• Check MoneySavingExpert’s balance transfer comparison
• Look at longest 0% periods
• Factor in transfer fees (usually 3-4%)

Step 5: Calculate the Total Cost

Don’t just look at monthly payments. Work out:

• Total amount you’ll repay
• Total interest charged
• All fees

Compare this to your current situation.

Use a loan calculator to check the numbers.

Step 6: Apply (But Be Careful)

Tips:

• Use “soft search” or “quotation search” options first (won’t affect credit score)
• Only apply for loans you’re likely to get
• Don’t make multiple applications in a short time (damages credit score)

Step 7: Pay Off Your Old Debts

Once approved:

1. Pay off all old debts IMMEDIATELY
2. Get written confirmation they’re closed
3. Cut up old credit cards (or freeze them)
4. Set up a Direct Debit for your consolidation loan

Step 8: Don’t Use Credit Again

This is where most people fail.

You’ve cleared your credit cards. The temptation to use them is huge.

Don’t do it.

Close the accounts or hide the cards. Using them again is how you end up with double the debt.

How Much Can You Save?

Real examples of potential savings:

Example 1: £5,000 Credit Card Debt

• Current: 23% APR, £150/month, total cost £7,800 over 4 years
• Consolidation loan: 10% APR, £130/month, total cost £6,240 over 4 years
• Saves £1,560 and pays off 6 months faster

Example 2: £15,000 Multiple Debts

• Current: Mix of 19-35% APR, £450/month, total cost £23,000 over 5 years
• Consolidation loan: 9% APR, £310/month, total cost £18,600 over 5 years
• Saves £4,400 and £140/month

Example 3: £3,000 Credit Card

• Current: 21% APR, £90/month, total cost £3,900 over 3 years
• Balance transfer: 0% for 24 months, £135/month, total cost £3,090 (inc. 3% fee)
• Saves £810

Your savings depend on:

• How much you owe
• Your current interest rates
• The rate you can get
• How long you take to repay

Alternatives to Debt Consolidation

Consolidation isn’t the only option. Consider:

1. Debt Avalanche/Snowball Method

Pay off debts one by one without consolidating.

Pros: No new loan, no fees, builds discipline Cons: Takes willpower, multiple payments to track

[Link to main debt guide for details]

2. Balance Transfer Without Full Consolidation

Transfer just your highest-rate debts to a 0% card.

Pros: Lower cost, less commitment Cons: Only works for credit cards

3. Debt Management Plan

Let a charity negotiate reduced payments with all creditors.

Pros: Professional help, free, reduces payments Cons: Damages credit score, takes longer

4. Ask for Better Rates

Contact your current lenders and ask them to reduce your rates.

You might be surprised. Many will reduce rates if you ask, especially if you’ve been a good customer.

5. Increase Your Income

Sometimes the answer isn’t moving debt around, it’s earning more to pay it off faster.

Options:

• Overtime at work
• Side hustles [link to your £500/month post]
• Matched betting [link to your matched betting post]
• Sell stuff you don’t need

Debt Consolidation Mistakes to Avoid

Mistake 1: Not Shopping Around

The first offer you get is rarely the best. Compare at least 5-6 options.

Mistake 2: Falling for Scams

Avoid companies that:

• Charge upfront fees
• Promise to write off debt
• Use aggressive sales tactics
• Offer “guaranteed approval”

If it sounds too good to be true, it is.

Mistake 3: Securing Debt Against Your Home Unnecessarily

Never secure debt against your home unless absolutely necessary. It turns unsecured debt into secured debt.

If you can’t pay, you lose your home.

Mistake 4: Ignoring Early Repayment Charges

Some loans charge hefty fees if you pay them off early. Factor this into your calculations.

Mistake 5: Running Up New Debt

I can’t stress this enough: If you consolidate and then use your credit cards again, you’re screwed.

You’ll have:

• The consolidation loan payment
• New credit card debt
• Twice the problem

Close the accounts or cut up the cards.

Mistake 6: Choosing the Longest Term to Get Lower Payments

A 7-year loan at £150/month might seem better than a 3-year loan at £250/month.

But you’ll pay thousands more in interest over the longer term.

Choose the shortest term you can realistically afford.

Mistake 7: Not Reading the Fine Print

Check for:

• Hidden fees
• Early repayment charges
• Payment protection insurance (don’t buy it)
• Variable vs fixed rates

If you don’t understand something, ask or get free advice.

Is Debt Consolidation Right for You?

Consider consolidation if:

• You have multiple high-interest debts
• You can get a significantly lower interest rate
• You can afford the new payment comfortably
• You’re committed to not taking on new debt
• The total cost works out cheaper

Avoid consolidation if:

• You can’t get a lower rate
• You haven’t fixed the spending problem
• You’re struggling with priority debts
• The fees are too high
• You’re nearly debt-free anyway

When in doubt, get free advice from:

• StepChange (0800 138 1111)
• National Debtline (0808 808 4000)
• Citizens Advice (local offices)

They’ll look at your specific situation and tell you honestly if consolidation makes sense.

Final Thoughts

Debt consolidation can be brilliant if done right.

It can save you thousands in interest and simplify your finances.

But it only works if:

1. You get a genuinely better deal
2. You can afford the payments
3. You don’t take on new debt

Before you consolidate, work out the numbers properly. Compare your options. And be honest with yourself about whether you’ll stick to it.

If you’re unsure, get free advice. Don’t pay for it – use StepChange, National Debtline, or Citizens Advice.

And remember: Consolidation is a tool, not a magic solution. You still need to pay off the debt.

But if it helps you do that faster and cheaper, it’s absolutely worth considering.

Get Free Debt Advice:

• StepChange – www.stepchange.org / 0800 138 1111
• National Debtline – www.nationaldebtline.org / 0808 808 4000
• Citizens Advice – www.citizensadvice.org.uk
• MoneyHelper – www.moneyhelper.org.uk

Last updated: November 2025