When you have multiple debts with different interest rates and payment dates, debt consolidation can simplify your finances and potentially save you money. But it is not always the right solution — understanding when it helps and when it does not is important.
How Debt Consolidation Works
| Step | Action |
|---|---|
| 1 | List all your current debts, balances, interest rates, and monthly payments |
| 2 | Compare consolidation options (loan, balance transfer, remortgage) |
| 3 | Apply for the consolidation product |
| 4 | Use new funds to pay off existing debts |
| 5 | Make a single monthly payment on the new product |
Consolidation Options
Personal Loan
| Feature | Detail |
|---|---|
| Typical APR | 5–15% (depending on credit score and amount) |
| Loan amount | £1,000–£25,000 |
| Repayment term | 1–7 years |
| Best for | Multiple debts totalling £3,000–£25,000 |
| Fixed payments | Yes — makes budgeting easier |
Use our personal loan calculator to estimate payments.
Balance Transfer Card
| Feature | Detail |
|---|---|
| Interest rate | 0% for 12–30 months |
| Fee | 0–3.5% of balance |
| Credit limit | Varies (may not cover all debts) |
| Best for | Credit card debt under £10,000 |
| Risk | Must clear before 0% ends or revert to 19–25% APR |
See our balance transfer guide for more detail.
Remortgage/Further Advance
| Feature | Detail |
|---|---|
| Interest rate | 4–6% (mortgage rates) |
| Amount | Added to mortgage |
| Term | Up to 25+ years |
| Best for | Larger debts (£10,000+) if you have equity |
| Risk | Debt is now secured on your home — default means repossession |
Comparison Example: £15,000 Total Debt
| Method | Monthly Payment | Term | Total Interest | Total Cost |
|---|---|---|---|---|
| Current debts (avg 18% APR) | Various (~£450) | 5 years | ~£7,500 | £22,500 |
| Personal loan (7% APR) | £297 | 5 years | £2,834 | £17,834 |
| Remortgage (5%, 15 years) | £119 | 15 years | £6,364 | £21,364 |
Key insight: The remortgage has the lowest monthly payment but costs more total because of the extended term. Always compare total cost, not just monthly payments.
When Consolidation Makes Sense
- You can get a lower interest rate than your current debts
- You can afford the monthly payment on the shorter term
- You will stop using credit for new spending
- Managing multiple payments is causing missed payments
- You want a fixed end date to be debt-free
When Consolidation Does NOT Make Sense
| Warning Sign | Risk |
|---|---|
| New interest rate is higher | You pay more |
| Extending the term significantly | Pay more total interest |
| Planning to continue using credit | Debts build up again |
| Cannot afford the monthly payment | Default risk |
| Consolidating into secured debt (mortgage) | Home at risk |
| Credit score too low for decent rates | May not qualify for savings |
The Debt Consolidation Trap
The biggest risk of consolidation is the “debt cycle”:
- Consolidate existing debts
- Credit cards are now clear with available balances
- Start spending on cards again
- End up with consolidation loan plus new credit card debt
- Worse off than before
Prevention: Close or freeze credit card accounts after consolidating. Address the spending habits that created the debt.
Step-by-Step Action Plan
- List all debts — provider, balance, interest rate, minimum payment, end date
- Calculate total monthly payments and total interest you will pay
- Check your credit score — use free services
- Use eligibility checkers — soft search, no credit impact
- Compare total cost (not just monthly payments) across options
- Apply for the best option once you have confirmed eligibility
- Pay off old debts with the consolidation funds
- Set up direct debit for the new payment
- Close old credit accounts (or reduce limits)
- Create a budget to avoid new debt — see our budget planner guide
Alternative Approaches
If consolidation is not suitable, consider:
| Option | Best For |
|---|---|
| Debt repayment strategies (avalanche/snowball) | Self-managed debt payoff |
| Debt management plan | Negotiated lower payments with creditors |
| IVA | Writing off some unaffordable debt |
| Bankruptcy | Last resort for overwhelming debt |
| Free debt advice (StepChange, National Debtline) | Any debt situation |
Getting professional advice is always free — never pay for debt advice. Contact StepChange (0800 138 1111) or Citizens Advice for free, impartial support.