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What debt can be consolidated?

Consolidating multiple debts can make budgeting more manageable, by rolling them into one monthly repayment to one lender. While some common types of debt, like credit cards and overdrafts can be consolidated, not all can. Generally, if the debt is secured against an asset (such as your home) it can’t be consolidated.

6 min read
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Can I consolidate my credit card debt? 

Yes, as credit cards are an unsecured form of lending, you can consolidate credit card debt. There are two main ways you can do this, using a:

  1. debt consolidation loan
  2. balance transfer credit card

There’s no hard and fast rule about which is the ‘best’ way to consolidate your credit card, as that depends on your personal circumstances - like your level of credit card debt and your eligibility, for example.

Debt consolidation loan

A debt consolidation loan helps you to bring all your debt into one place, to make it more manageable. By borrowing enough money from a single lender to repay your credit card debts in full, you swap multiple monthly payments and interest rates for just one.

This can make budgeting easier. In some cases, it can also save you money if you can find a loan with a lower interest rate than you’re currently paying.

There are two main types of debt consolidation loan:

  1. secured loan – where you use an asset as collateral, which means the lender can repossess your property if you fall behind with payments
  2. unsecured loan – where you don’t use any asset as collateral

Balance transfer credit card

A balance transfer credit card can offer the same benefit as a debt consolidation loan, in that you can use a card to move all your debt into one place - but it works in a different way. Rather than taking out a loan to repay your debt, you move all your debt onto one credit card as a means of consolidation.

Can I consolidate a consolidated loan?

Yes, it is possible to consolidate a consolidated loan, provided you’ve kept up with the repayments and you meet the new lender’s eligibility criteria.

There are circumstances where it may be beneficial to do so. For example, if you have an existing debt consolidation loan with an interest rate that's about to increase, and you’ve accumulated another line of credit on top.

You could take out a new loan with a more competitive interest rate to cover both lines of credit. 

Remember, regularly applying for credit can negatively affect your credit score by temporarily lowering it each time. Plus, making lots of applications within a short period could give lenders the impression that you’re desperate for cash.

Also, consolidating a second time may not help you get out of debt quicker. It only helps if you can find a more competitive deal with lower interest rates than you’re currently on.

Read on for 10 ways to get out of debt faster.

Can you consolidate student loans? 

Yes, you can consolidate student loans, but you should think carefully about whether this is the right decision for you.

When it comes to tuition fee and maintenance loans, one of the benefits is that you don’t have to begin repaying it until once you’ve completed your studies and earn over a certain amount. Once you’ve reached that threshold, the repayments are taken automatically from your pay before you get it. (The amount varies depending on how much you earn, which loan plan you’re on and how much interest you pay).

The terms of these types of loans tend to be very competitive, so consolidating them is unlikely to be beneficial with regards to making it more affordable.

Consolidating other types of student debt though, like credit cards and overdrafts, could be beneficial, as it allows you to reduce the number of monthly repayments you have to make. It also means you’re only charged one interest rate on your outstanding balance.

Can I consolidate my car loan and credit card? 

Yes, it is possible to consolidate different types of credit (such as a car loan and a credit card) using a debt consolidation loan. Whether you’ve used a personal loan or car finance to buy your car, it doesn’t matter. You may be able to take out a loan to cover the cost of the car and your credit card balance – if you meet the lender’s eligibility criteria.

An unsecured debt consolidation loan works in a similar way to a personal loan. Once you’ve borrowed the lump sum of money from the lender, you’re free to pay off your debts as you like.

As long as you make the monthly loan repayments, you can use a debt consolidation loan to pay off your car loan and credit card, if you wish.

Can I consolidate my payday loans? 

You can consolidate payday loans with a debt consolidation loan, but you should be cautious when considering this.

Consolidating your payday loans with a debt consolidation loan will only be effective if the new interest rate is lower than that of the combined payday loans.

If you’re someone who has had several payday loans, your credit score will reflect this. While it’s possible to get a debt consolidation loan with a poor credit history, it’s likely you’ll be offered higher interest rates and lower loan amounts. If the interest on the debt consolidation loan is higher than the combined value of your payday loans, then it won’t be worth it – even for the ease of having a single repayment.

Opting for a secured debt consolidation loan could be a way to get a lower interest rate or a higher value loan (if required). But remember that secured loans require an asset (such as your home) to be used as collateral. This means your property can be repossessed if you fail to make your repayments (usually as a last resort).

Can you consolidate tax debt? 

Any kind of HMRC debt, such as Income Tax, National Insurance, or VAT arrears, is classed as a priority debt. This means you need to pay it back as soon as possible or you could potentially face serious consequences, such as court action, for example.

If you have multiple HMRC debts (or just one, plus other types of debts) you could pay them off using a debt consolidation loan. This would allow you to avoid further action from HMRC.

You should only do so if the loan is affordable and you know you can make the payments on time, every time. Otherwise, missed loan payments can affect your credit score and lead to defaults and County Court Judgements (CCJs) further down the line.

Bear in mind that these negative markers stay on your credit report for six years and can make getting credit very difficult.

Can I consolidate all my debt? 

This depends on the kind of debt you have. As we’ve discussed here, most common kinds of debt can be consolidated. If you have multiple credit card debts, these can be consolidated under a balance transfer credit card - if the limit allows. If you have multiple debts across different types of lenders, i.e., overdrafts, credit cards or personal loans, you can use a debt consolidation loan to consolidate them.

How much of your debt you can consolidate depends not only on the kind of debt, but also the amount. Your debt may be worth more than you’re able to borrow from a debt consolidation loan lender. If so, you wouldn’t be able to consolidate all of it.

That isn’t to say it couldn’t still be beneficial, though. If you have to choose which debts to consolidate, consider which have the highest interest rates and are costing you the most. It may take some of the pressure off, make your debt more affordable and help you get out of at least some of it quicker.

Where to get help if you’re struggling to pay off debt 

If you’re struggling to pay off debt and don’t know what to do, the most important thing is not to panic. You’re not alone, struggling with debt is a much more common occurrence than you might think, and there are organisations that can help. Try getting in touch with StepChange or Citizens Advice for free help and advice.

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Intelligent Lending Ltd is credit broker, working with a panel of lenders. Homeowner loans are secured against your home.