Debt consolidation loans promise to simplify your finances and reduce your monthly outgoings — but they don’t always save you money. In this guide, we’ll show you exactly when consolidating debt makes sense, when it doesn’t, and how to calculate whether it will save you money before you apply.
What Is Debt Consolidation?
Debt consolidation means taking out a single new loan to pay off multiple existing debts — credit cards, overdrafts, store cards — leaving you with one monthly payment. Use our loan calculator to work out what your consolidated monthly repayment would be at a given rate and term.
When Debt Consolidation Makes Sense
| Debt | Balance | Rate | Monthly Payment |
|---|---|---|---|
| Credit Card A | £2,500 | 22.9% | £80 |
| Credit Card B | £1,800 | 29.9% | £65 |
| Store Card | £900 | 39.9% | £40 |
| Overdraft | £1,300 | 40% | £55 |
| Total | £6,500 | ~30% avg | £240 |
After consolidating into a 3-year loan at 7.9%: Monthly payment drops to £203 (saving £37/month). Total interest: £810 vs ~£3,200 across originals — saving approximately £2,390.
When Debt Consolidation Doesn’t Work
- Extending the term too long — A lower monthly payment over a longer term might cost more in total interest
- Not qualifying for a low rate — If your credit score is poor, you may only qualify at 15–20%, which may not be better than your current debts
- Continuing to use cleared cards — The most common mistake: consolidating then building balances back up
Alternatives to Debt Consolidation
| Option | Best For | Key Consideration |
|---|---|---|
| 0% Balance Transfer Card | Credit card debt under £10,000 | Transfer fee 2–4%; must clear in 0% period |
| Debt Management Plan | Cannot afford minimum payments | Free via StepChange; affects credit score |
| Avalanche Method | Disciplined self-managed repayment | Pay highest-rate debt first; saves most interest |
| Snowball Method | Motivational boost needed | Pay smallest balance first; builds momentum |
Debt Consolidation FAQ
Will debt consolidation hurt my credit score?
Applying triggers a hard credit search, temporarily reducing your score. If approved and all repayments are made on time, your score will recover and likely improve as your overall debt reduces.
Can I consolidate loans if I have bad credit?
Yes, but the rates available will be higher. If your credit score is low, consider working with a free debt charity like StepChange or Citizens Advice before applying for additional credit.
Related Calculators
- Loan Calculator — Model your consolidation loan repayments and total cost
- APR Calculator — Calculate the true APR of any loan
- Savings Calculator — Redirect monthly savings once debt is cleared