Debt consolidation

The information in the guide was last updated on 07/01/16

What is debt consolidation?

A personal loan for debt consolidation can be taken out to pay off debts such as credit cards, store cards and other personal loans rolling them into one manageable monthly payment.

Your debt doesn’t disappear – it will still have to be paid off. However, you may be able to reduce your monthly outgoings because:


  • You’ll pay the same interest on all of your debt. Interest on credit and store cards can be high, a personal loan rate could be much lower.
  • You may be able to spread the loan over a longer period. This may reduce your monthly payment, but by increasing the term you may pay more interest overall.

Consolidating debt is not the best solution for everyone, and the interest rate may sometimes be higher which could mean that you pay more back overall. However, if you can afford the repayments, you have stable finances and you can control your spending, this could be an option for you.

Remember, it’s important to consider all of your borrowing options carefully; we don't recommend that you borrow or increase your debts if you’re in financial difficulties. If you’re unsure what to do, seek independent advice.

Things to consider before taking out a personal loan

Before consolidating any debt, here are some things to consider.


  • You must be sure that you can realistically afford the new payments so try filling out a budget sheet listing your income and outgoings.
  • If you have a poor credit rating you may not be able to take out a consolidation loan, or you may be offered one on less reasonable terms (eg a higher interest rate). If so, debt consolidation may not be for you. See looking after your credit rating
  • Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
  • A consolidation loan may be offered over a longer period than your original credit, so even if the interest rate is reasonable, the overall cost of the loan could increase, meaning you end up paying more.
  • Don't borrow more than you need. If you take out more credit, you'll add to your debt, meaning you could end up taking longer to pay it off.

Debt consolidation tips

  • To make debt consolidation work for you, ideally you need to roll all your debts into one with a low APR so that you can reduce your total monthly payment. Compare advertised rates from different loan providers.
  • Interest rates can change over the period of a loan, making it difficult to budget. Make sure the interest rate offered is ‘fixed’ over the term of the loan, - not ‘variable’.
  • Read the small print carefully before taking out any loan - there may be hidden extra fees or charges.
  • If you take out a loan for consolidation, pay off your existing debts in full, cut up your cards and cancel credit agreements in writing otherwise you might be tempted to use the cards to borrow more, ending up with an even bigger debt than you started off with.

Everyone’s circumstances are different, and there may be a better solution for you than getting a personal consolidation loan. Try StepChange debt charity's free, anonymous online tool Debt Remedy.

Read more hints and tips to help you reduce your money worries.