What is debt consolidation?

Debt consolidation is a way to move all of your debt into one place. It allows you to trade in multiple repayments, interest rates and lenders for a single monthly payment that is affordable, easy to manage and has the potential to reduce your debt faster.

5 min read
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What is a debt consolidation loan?

A debt consolidation loan is a way to borrow money to pay off your existing debts, so you only have one payment to make each month. It allows you to merge all of the money that you owe across different lenders into one place, which makes it easier to manage your repayments.

A debt consolidation loan can make repaying your debt more affordable, as you only have one interest rate that tends to be fixed for the loan duration (instead of lots of varying rates). This makes budgeting easier and may even help reduce debt faster.

How do debt consolidation loans work?

Debt consolidation involves taking out new credit (usually in the form of a loan) to pay off old credit. The new credit will come from a single lender with a new interest rate and will be used to pay off the old credit in full. This new loan then has to be repaid over an agreed period in single monthly repayments.

Remember, if you consolidate your existing borrowing, you may be extending the term and increasing the amount you repay in total.

Who can get a debt consolidation loan?

If you have poor credit, you may find it difficult to get accepted for a debt consolidation – but it’s not impossible. If you are approved, you’re likely to only be offered a loan with a very high interest rate. If this is the case, a debt consolidation loan may not be the right move for you.

What can I use a debt consolidation loan for?

Debt consolidation loans can be used to pay off a variety of credit products, here are some of the most common. 

Credit cards

Credit cards can charge high interest rates, which makes them less suitable for long-term borrowing. If you have a credit card that’s taking a long time to repay, or you have multiple credit cards, a debt consolidation loan could be a good way of reducing the amount you’ll have to repay in the long-term – if you can find a loan with a lower interest rate.


It’s easy to get stuck in an arranged overdraft when banks can charge as much as 40% interest on them. If you have an overdraft that you’re struggling to get out of because the interest is high, a debt consolidation loan could help reduce the interest you pay and get you out of debt faster.

Personal loans

It may sound a bit strange to take out a personal loan to pay off another loan, but in some cases it can be the best way to reduce the amount you’re paying on existing loans in the long run. Make sure you do your research and compare interest rates to see if you can make a saving.

How many debts can I consolidate?

When you take out a debt consolidation loan, you borrow money to pay off your existing debts. There’s no set number of debts that you can or can’t consolidate under a loan. Instead, the number depends on how much you’re able to borrow and how much your debt is worth.

How much you can borrow will depend on your personal circumstances and the lender’s criteria. If you have a poor credit score, you’re unlikely to be offered a large loan, so you may not be able to consolidate all your debts. In which case, it’ll be up to you to choose how many you’ll pay off with the loan.

How much your total debt is worth will also be a factor in how many debts you can consolidate. For example, if you borrow £5,000 and you have two sets of credit card debt each worth £2,500, you’ll be able to consolidate them both. However, if you have four sets of credit card debt each worth £1,500, you’ll only be able to fully clear three of them with £5,000.

When should you consider debt consolidation?

Debt consolidation isn’t always the best solution for managing debt. It only makes sense to consolidate your debts if

  • you know you can commit to the monthly repayments for the duration of the loan term
  • if you can find lower interest rates than you’re currently paying
  • you don’t end up paying more through fees or charges
  • you use it as part of a wider money management strategy to simplify your outgoings

What's the difference between a secured and unsecured debt consolidation loan?

Secured debt consolidation loan 

  • a secured loan is so-called because the amount you borrow is secured against an asset you own, such as your home
  • if you miss or can’t make your repayments, that asset could be sold to claw back unpaid debt, so think carefully before securing unsecured debts to your home
  • securing the debt reduces the risk for the lender, so they tend to be easier to get
  • this type of loan is more likely to be offered to people who owe a large amount of money or have a poor credit history, compared to unsecured loans

Unsecured debt consolidation loan 

  • an unsecured debt consolidation loan is not secured against any of your assets, so there’s no risk of losing your property if you can’t make your repayments
  • they’re more likely to be offered to those with a good credit history than a poor credit history
  • they tend to be lower amounts, as there’s more risk to the lender with them not having any collateral as security

What’s the difference between a personal loan and a debt consolidation loan? 

The only difference between a personal loan and an unsecured debt consolidation loan is what you’re using it for. In almost every other way, personal loans and debt consolidation loans are the same; they both offer credit over time that you pay back in instalments.

Is a personal loan a good idea for debt consolidation?

As there is little difference between a personal loan and an unsecured debt consolidation loan, getting a personal loan can be a suitable way to consolidate your debts. However, as with a debt consolidation loan, you should take into account the points made above.

You should only consider getting a loan to consolidate your debt if you know you can commit to the monthly repayments, it’ll make your debt more affordable in the long run and you use it as part of a wider money management strategy.

Check your eligibility for a debt consolidation loan

  • Reduce your monthly payments
  • Personal and homeowner loans available
  • Getting a quote is FREE and won't affect your credit score
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Intelligent Lending Ltd is credit broker, working with a panel of lenders. Homeowner loans are secured against your home.

Disclaimer: All information and links are correct at the time of publishing.

Adele Kitchen, Personal Finance Writer

Adele Kitchen

Personal Finance Writer

Adele is a personal finance writer with more than 10 years in the finance industry behind her. She writes clear and engaging guides on all things loans for Ocean, as well as contributing blogs to help people understand their options when it comes to money.