Is debt consolidation worth it?
Consolidating several debts into one loan can simplify your finances and cut the rate — or quietly cost you more over a longer term. This guide explains when it helps and the traps to avoid.
What consolidation does
Debt consolidation replaces several debts — credit cards, store cards, overdrafts, loans — with a single loan and one monthly payment. The aim is usually a lower interest rate, a fixed end date and simpler admin. It works best when you're paying high card APRs and can move to a meaningfully lower personal-loan rate, while keeping the term as short as you can afford.
Lower payment isn't always cheaper
The biggest trap is judging consolidation by the monthly payment. Spreading the same debt over a longer term lowers the monthly cost but can increase the total interest — you pay less each month for many more months. Always compare the total interest and the payoff date, not just the monthly figure. The calculator shows both.
Don't free up cards and re-spend
Secured vs unsecured consolidation
Unsecured consolidation loans don't risk your home but need a reasonable credit profile. Secured consolidation (a homeowner loan or remortgage) can offer a lower rate and larger sums, but turns unsecured debt into debt secured on your home — which can be repossessed if you don't pay, and stretching it over 25 years can cost far more. Treat secured consolidation with caution.
When not to consolidate
If your debts are on credit cards, a 0% balance transfer may be cheaper than a loan. If you're struggling to keep up at all, free debt advice (StepChange, National Debtline, Citizens Advice) and solutions like a Debt Management Plan may suit better than new borrowing. Consolidation is a tool for reorganising affordable debt, not a rescue for unaffordable debt.
Common mistakes
- Focusing on the monthly payment. A longer term lowers the payment but can raise total interest. Compare total cost.
- Re-spending on cleared cards. Consolidation only works if you don't rebuild the old balances.
- Securing debt on your home needlessly. It risks your home and often costs more over a long term.
- Ignoring arrangement fees. Some consolidation loans carry fees that erode the saving — check the APR.