Juggling several debts at once is tiring. Different due dates, different lenders and different balances make it hard to see where you stand. Debt consolidation promises to tidy all of that into one payment, and for some people it does exactly that. For others it adds cost or simply moves the problem somewhere else.
This guide explains how consolidation works, the main ways to do it and the questions to ask before you decide.
What debt consolidation means
Consolidating means taking out one new form of credit and using it to pay off several existing debts, such as credit cards, store cards, overdrafts or small loans. You are left with a single lender and a single monthly or weekly payment.
It does not reduce what you owe on the day you do it. What can change is the interest you pay, how long you take to repay and how easy it is to keep on top of things.
The main ways to consolidate debts
A personal consolidation loan
An unsecured personal loan pays off your other debts, and you repay it in fixed instalments over an agreed term. The rate you are offered depends on your credit history and circumstances, so it may not be lower than what you pay now.
A balance transfer credit card
You move existing card balances onto a new card with a low or 0% introductory rate. There is usually a transfer fee, and the rate goes up when the offer ends. It works best if you can clear the balance during the offer period and avoid spending on the new card.
A secured loan
Some people borrow against their home or their car. Lenders may consider applicants who would struggle to get an unsecured loan, because the loan is backed by an asset. The trade-off is serious: if you cannot keep up repayments, you could lose that asset. Turning unsecured debts into secured ones should never be done lightly.
A logbook loan from Logbook Money is one form of secured borrowing. It is secured on your vehicle, with fixed interest and repayments over 18 to 60 months. It is an expensive way to borrow, so check the representative example on our loan calculator and compare the total you would repay with what you pay now.
The pros and cons of consolidating
Possible benefits:
- one payment date to remember
- a fixed end date, so you know when you will be debt-free
- possibly lower interest overall, if the new rate is lower and the term is not much longer
Possible drawbacks:
- a lower monthly payment over a longer term can mean paying more in total
- fees for arranging the new credit or for repaying old debts early
- cleared credit cards are still open, which makes it tempting to use them again
- with secured loans, your home or vehicle is at risk
The figure to compare is the total amount repayable, not the monthly payment. Our guide to interest rates and APR explains how to read it.
When consolidation will not help
Consolidation is a tool for people who can afford their debts but want them simpler or cheaper. It is unlikely to help if:
- you are already missing payments or using credit to pay for essentials
- your income does not cover your bills, even with one lower payment
- the reason the debts built up has not been dealt with
- you would be borrowing more than you owe to have spare cash
In those situations, more borrowing can make things worse. Our article on practical ways to get out of debt covers approaches that do not involve new credit, such as the snowball and avalanche methods.
Get free advice before you decide
Free, confidential debt advice can show you options you may not know about, including debt management plans, where an adviser arranges reduced payments with your creditors. In England and Wales, the Breathing Space scheme can also pause most interest, charges and enforcement action for up to 60 days while you get advice.
This article is general information, not financial advice. Speak to StepChange, National Debtline or MoneyHelper before taking on any new loan to consolidate. You can also read our comparison of the cost of different kinds of borrowing.
Your car may be repossessed if you do not keep up repayments on a loan secured against it.
