Debt consolidation loans explained: one payment, but watch the cost
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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.
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Read the full credit cards & loans guide →Primary source: www.gov.uk/consumer-protection-rights/loans
When consolidation saves money
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.
Common 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.