# Debt consolidation loans explained: one payment, but watch the cost

> Credit cards & loans · Last updated 23 June 2026

Canonical HTML: https://moneyguide.org.uk/credit/debt-consolidation-loans-explained/
Markdown mirror: https://moneyguide.org.uk/credit/debt-consolidation-loans-explained.md

## Quick answer

A debt consolidation loan combines multiple debts into a single loan with one monthly payment. It simplifies management and may reduce interest, but extending the term can mean paying more overall even at a lower rate.

Debt consolidation rolls several debts — credit cards, store cards, personal loans — into one new loan. The appeal is simplicity: one payment, one rate, one end date. But consolidation only helps if the new rate is genuinely lower and you do not run up new debts on the cleared cards.

## Key facts

- Consolidation replaces multiple payments with one fixed monthly payment at a set interest rate
- Unsecured consolidation loans typically range from £1,000 to £25,000 over 1–7 years
- Secured consolidation (against your home) offers lower rates but puts your property at risk
- Consolidation does not reduce the total debt — it restructures it. New spending on cleared cards creates worse debt

## When consolidation saves money

Consolidation works when the new loan's APR is lower than the weighted average of your current debts and the term is not excessively longer.

Example: replacing £8,000 of credit card debt at 24% APR with a £8,000 loan at 9% APR over three years cuts monthly interest significantly.

## When consolidation backfires

Extending repayment from three years to seven years at a lower rate can mean paying more total interest despite the lower APR.

If you consolidate and then use the freed-up credit cards again, you end up with the consolidation loan plus new card debt — double the problem.

Close or freeze cleared cards after consolidating to prevent re-spending.

## Alternatives to a consolidation loan

A 0% balance transfer card avoids interest for 12–28 months if you can repay within the promotional period.

A free Debt Management Plan through StepChange negotiates lower payments with creditors without a new loan.

If debts exceed £6,000 and you cannot afford minimum payments, an IVA or DRO may be more appropriate than consolidation.

## Frequently asked questions

### Will a consolidation loan hurt my credit score?

The application causes a short-term dip. Over time, reducing utilisation on credit cards and making consistent loan payments can improve your score.

### Can I consolidate with bad credit?

Options are limited and rates are high. A DMP through a free charity may be more appropriate than an expensive consolidation loan.

### Should I consolidate into my mortgage?

Mortgage rates are lower but the debt is secured against your home and the term is much longer. Only consider this with full understanding of the risks.

## Primary source

https://www.gov.uk/consumer-protection-rights/loans

## Related

- [0% credit cards explained](https://moneyguide.org.uk/credit/0-percent-credit-cards-explained/)
- [Debt management plans](https://moneyguide.org.uk/debt-help/debt-management-plans-explained/)

---

Independent UK money guidance from [Money Guide](https://moneyguide.org.uk). Money Guide is not a financial adviser and does not currently earn commission on credit cards. This guide is educational information only — always check the issuer's own terms, eligibility checkers and fees before applying. 18+, subject to status. Credit is a commitment: only borrow what you can repay in full each month, because interest charges erase every reward on this page.