Debt consolidation loans UK: are they a good idea?

How debt consolidation works

You take out one new loan, use it to clear several existing debts, such as credit cards, an overdraft and store cards, then repay the new loan in fixed monthly payments over a set term.

The appeal is simplicity: one payment, one date, and a clear end point.

When it can save you money

Compare these before you apply:

1. The interest rate. Is the loan's APR lower than the average rate on your current debts?
2. The total cost. A lower monthly payment over a longer term can cost more overall. Compare the total amount repayable.
3. Fees. Arrangement fees and early repayment charges on existing debts all count.

Use the debt calculator to see how long your current debts would take, and what they would cost, before comparing a loan offer:

Free toolDebt payoff calculatorSee when you will be debt free, and whether the snowball or avalanche method saves you more.→

When it makes things worse

• The term is much longer. Spreading £5,000 of card debt over seven years can mean paying more interest than clearing the cards faster.
• You use the cards again. This is the biggest risk. Within a year or two you can owe the loan and the cards.
• It is secured on your home. A secured loan can turn unsecured card debt into debt that puts your home at risk if you fall behind.
• The rate is not actually lower. If your credit score is damaged, the rate offered may be no better than what you pay now.

Unsecured vs secured

For most people consolidating card debt, a secured loan is not worth the risk.

Alternatives to a consolidation loan

• A 0% balance transfer card for credit card debt, if you can get one. See balance transfer cards explained.
• The avalanche or snowball method on your existing debts. See how to pay off debt faster.
• A free debt management plan from a debt charity, if you cannot afford your payments. Creditors often freeze interest. See free debt help.

Before you apply

1. Check your credit reports, and fix any errors.
2. Use eligibility checkers, which do not leave a mark lenders can see.
3. Make a plan to close or lock the cards you clear.

Common questions

Does debt consolidation hurt your credit score?

Applying leaves a hard search, which has a small, short-term effect. Over time, paying the loan on time and keeping card balances low usually helps.

Can I get a consolidation loan with bad credit?

Possibly, but the rate may be high enough that it does not save you money. Be wary of lenders who target people with poor credit, and talk to a free debt adviser first.

Is a debt management plan the same as consolidation?

No. A debt management plan is not a new loan. You make one payment to a debt charity, which shares it between your creditors. It is free through charities like StepChange.