What happens when you consolidate your debt?
When you consolidate all your debt, you borrow an amount that covers everything you owe. For example, if you owe £10,000 on a loan and £5,000 on a credit card, you could pay these off with a single loan for £15,000.
You would still need to pay back what you owe, but you’d only have one monthly repayment to one lender going forward.
The amount of interest you pay could reduce if you can find a better deal than you’re currently on. If you spread your repayments over a longer period, your repayments will be lower, but you may end up paying more interest in total.
It’s best to shop around and get loan quotes using an eligibility checker like ours. This shows your chances of being accepted for a debt consolidation loan before you apply - without affecting your credit score.
Types of debt you can consolidate
You can consolidate any debts that can be repaid early under the Consumer Credit Act. These include:
- most types of loans, including secured, unsecured and payday loans
- credit cards
- overdrafts on current accounts
- old outstanding utility bills (not current bills)
- unpaid tax
- any debt that’s been passed onto a debt collection agency or a bailiff
What are the pros and cons of a debt consolidation loan?
You’ll need to work out whether it’s the best financial decision for you by weighing up the pros and cons.
Pros
- Easier to keep track of what you owe – if you have one monthly repayment to one lender. This can reduce the risk of you missing a payment.
- You may end up paying less interest – if you are eligible for a better rate than you are currently paying.
- Potentially reduce your monthly repayments – especially if you have multiple debts accruing interest.
- You could improve your credit score - if you always pay on time this should boost your rating.
Cons
- Early repayment charges – if you are clearing existing loans before the agreed end date (depending on their terms and conditions).
- Higher interest rates may apply - especially if you have bad credit.
- You could end up paying more interest overall – if you spread your repayments over a longer timeframe.
Factors to consider before taking out a debt consolidation loan
1. Can you afford a debt consolidation loan?
Make sure you can afford the repayments on a debt consolidation loan before applying. Otherwise, you may find yourself sliding further into debt. Any missed payments may incur late fees and can affect your credit score and ability to get approved for finance.
2. Which type of debt consolidation loan is right for you?
There are two main types of consolidation loans: secured and unsecured.
Secured loans (or homeowner loans) are tied to your property, which means you may be able to access lower rates as there is less risk involved for the lender. But if you fall behind on your payments, your home could be repossessed, in the worst-case scenario.
An unsecured debt consolidation loan is like any other personal loan in that it’s not tied to your property. So, you don’t need to be a homeowner to apply.
3. Will the loan cover all your debts?
If your debt consolidation loan is not enough to cover all your debts, you will still have debt in more than one place. And if you are struggling to stay on top of multiple debts now, there is a risk that this issue could continue when you’re paying off a consolidation loan.
4. Will you be shortening or extending your loan term?
Extending your loan term is likely to reduce your monthly repayments but cost you more in interest overall.
5. Will you pay more or less interest?
One reason for getting a debt consolidation loan could be to pay less interest on your debt. However, people with a thin or poor credit history might only be eligible for high interest rates. This could put you further into debt.
6. Will a debt consolidation loan increase or lower your total cost?
Work out the total cost of all your current debts, including interest and fees. If you’re unsure what these are, you can request settlement figures from your lenders.
Can I get independent advice about debt consolidation loans?
Yes, you can get free, confidential advice about debt consolidation loans and about debt in general from a professional debt specialist. Visit Money Wellness, StepChange, Citizens Advice, National Debtline, or MoneyHelper to find out more.
Loans for all purposes from £1,000 to £500,000
- Get a decision online
- Know your rate before you apply
- Comparing won't affect your credit score
Intelligent Lending Ltd is a credit broker, working with a panel of lenders. Homeowner loans are secured against your home.

Disclaimer: We make every effort to ensure content is correct when published. Information on this website doesn't constitute financial advice, and we aren't responsible for the content of any external sites.