What is debt consolidation and could it help you?

How does debt consolidation work?

Let’s say you have three credit cards and one loan.

Each one has a different repayment date. Two have high interest rates. One has a small balance but you keep forgetting when it’s due.

With debt consolidation, you might borrow enough to clear those balances. You then repay the new borrowing each month.

That can give you:

• One payment date to remember
• One interest rate to understand
• One lender to deal with
• A clearer end date, in some cases

But you still owe the money. If you keep using the old cards or overdraft, you could end up with new debt on top.

Who might debt consolidation help?

Debt consolidation can help in some situations. It works best when it forms part of a bigger plan to clear what you owe.

It may suit you if:

• You’re managing several debts at once
• You can afford the new monthly repayment
• You can get a lower interest rate than you pay now
• The fees don’t wipe out the savings
• You want one clear repayment plan
• You can avoid building up new debt afterwards

It may also help if debt admin is causing stress. One payment can feel easier than five.

If you’re only paying minimum payments

Credit card debt can take longer to clear if you only pay the minimum.

A consolidation option with a set repayment plan could help you make faster progress. But make sure to calculate the total amount repayable and check the monthly payments are affordable.

If interest is making your debt grow

High interest can make it feel like your debt barely moves.

A lower-interest option could help more of your monthly payment go towards the balance itself. That may help you pay off the debt faster.

If you want fewer payment dates

Sometimes the problem isn’t just the amount owed. It’s the number of things to manage.

Bringing debts together can reduce the risk of missing a date by mistake.

When debt consolidation may not be right

Debt consolidation isn’t right for everyone.

It may not help if you’re already missing payments, relying on credit for everyday costs or borrowing more each month.

In that situation, free debt advice may be a better first step. A debt adviser can help you look at your full position and understand your options.

Debt consolidation may also cost more overall if you spread repayments over a longer term.

A smaller monthly payment can feel helpful now. But paying for longer may mean paying more interest in total.

You should also take care if the borrowing is secured against your home. If you miss repayments on secured borrowing, your home could be at risk.

Read more: what is secured borrowing?

Ways to consolidate debt

There are different ways to consolidate debt. The best route depends on what you owe, what you can afford and what products you can get.

Here are the main options to consider.

Debt consolidation loans

A debt consolidation loan is a personal loan used to pay off other debts.

You borrow a set amount, clear your existing balances and repay the new loan monthly. Debt consolidation loans usually have fixed payments over a set term.

This can make budgeting easier because you know exactly how much will leave your account each month and when.

A debt consolidation loan could help if:

• You can get a lower rate than your current debts
• You want a set end date
• You prefer fixed monthly repayments
• You can avoid taking on new credit afterwards

But check the total amount repayable, not just the monthly cost.

A longer loan term may reduce your monthly payments. But it can increase what you pay overall.

You should also check whether your existing lenders charge early repayment fees.

Find out about Post Office debt consolidation loans

Balance transfer credit cards

A balance transfer credit card lets you move debt from one credit card to another credit card.

Many balance transfer cards offer 0% interest for a set time. That can help you reduce interest while you work through the balance.

This may work well if:

• Most of your debt is on credit cards
• You can get a good 0% or low-interest offer
• You can repay the balance before the offer ends
• The transfer fee is lower than the interest you’ll save

There are a few things to check first.

Balance transfers often charge a fee. You should also check how long the 0% period lasts and what rate applies after it ends.

Try not to spend on the balance transfer card. New spending might not get the same 0% rate.

You normally need a good credit score to get the strongest offers.

Find out about Post Office Credit Cards

Remortgaging or secured borrowing

Some homeowners consider remortgaging or secured borrowing to pay off other debts.

This means using your home as security for the borrowing. It can sometimes reduce monthly payments because mortgage rates may be lower than credit card rates.

But the risk is much bigger. You could turn unsecured debts into debt secured against your home. If you miss repayments, your home could be at risk. You may also pay more overall if the debt is spread across many years.

Before considering this route, check:

• The full cost over the mortgage term
• Any mortgage fees
• Any early repayment charges
• Whether your monthly payment could rise later
• What happens if your income changes
• Whether independent mortgage advice is needed

Remortgaging to clear debt can look simple at first. But it needs careful thought.

Other ways to deal with debt

Debt consolidation is only one option. If your debts feel unmanageable, there may be better ways to deal with them. These could include a repayment plan, debt management plan or another formal debt option.

The right option depends on your income, assets and the type of debt you have. Free debt advice can help you understand what fits your circumstances.

You might also be able to speak directly with your lenders. If you tell them you’re struggling, they may be able to discuss support.

Getting help before you consolidate debt

If debt is keeping you awake at night, you're not alone.

Many people look at debt consolidation because they want relief from the stress of juggling payments. That makes sense. But before you apply for a new loan, credit card or other borrowing, it can help to talk things through with someone independent.

A debt adviser can look at your full situation, not just one debt. They can help you understand whether consolidation’s likely to help and whether there may be better options available.

This is especially important if:

• You're already missing payments
• You're using credit to cover everyday spending
• You're worried about court action or arrears
• You don't think you can afford your current repayments
• You're considering securing debt against your home

Our money worries page includes practical tips on managing your finances, building a budget and finding support, with details of independent organisations that offer free debt advice and support.

Getting advice doesn’t mean you’ve failed. It can help you make a more informed decision before taking on new borrowing.

What to check before you consolidate

Before you choose any debt consolidation option, stop and do the maths. A deal that looks cheaper each month might still cost more in the end.

Ask yourself:

• How much do I owe in total?
• What interest rate do I pay on each debt now?
• What fees would I pay to switch or repay early?
• What will the new monthly payment be?
• What will I pay back in total?
• How long will it take to clear?
• Can I afford it if costs rise elsewhere?
• Will I close or stop using old accounts?

It can help to write everything down in one place. Include every lender, balance, rate, payment date and minimum payment. Then compare that with any new option.

If you’re unsure, get some guidance before you apply.

Protect your credit score while dealing with debt

Debt can affect your credit score, especially if you miss payments. Consolidation may help you manage payments more easily. But applying for new credit can still affect your file.

To protect your score as much as you can:

• Check your eligibility before applying. This should be a soft search that doesn’t impact your credit score
• Keep repayments on time
• Avoid using old cards after clearing them
• Keep within credit limits
• Speak to lenders early if you’re struggling

A stronger credit history takes time. Steady, on-time payments can help.