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Debt consolidation loans

Debt consolidation loans. Are they right for me?

Debt consolidation joins all your debts together, usually by taking out a loan and using the money to pay back the people you owe. It is a popular way of repaying debt because it means there is only one monthly payment to make to the loan provider. They are not always a bad idea, but we speak to lots of people who end up deeper in debt after trying this. There are other ways to feel more in control of your repayments.

We always recommend getting debt advice to look at all the options available to deal with your debt before taking out a consolidation loan.

Our guide will explain how debt consolidation works, what other options may be available, and how to decide if it is right for you.

Quickly find what you are looking for



  1. Is consolidating your debt a good idea?
  2. Debt consolidation or debt management?
  3. Is consolidating debt worth it?
  4. What are secured and unsecured debt consolidation loans?
  5. Is debt consolidation bad for your credit score?
  6. Can I get a consolidation loan with poor credit?
  7. Is government debt consolidation real?
  8. Things to consider before consolidating debt

Is consolidating your debt a good idea?

A debt consolidation loan will mean you only have one company to pay back each month. It can help you manage your budget better if you only have one monthly payment to take care of.

People also consolidate credit card debt by moving the balances to a lower interest card to try and reduce the total amount they will pay back.

It sounds simple, but there are hidden risks that could make your situation worse. The way you deal with debt should make your life easier, not harder.

It means taking out new credit

Signing up for a debt consolidation loan means you are taking out a new credit agreement and using the money to “pay off” your debt. The debt does not disappear though, as you will now have to repay the new loan. There will be new terms and conditions to understand. And there may be other charges like set-up fees or early repayment fees.

An arrangement fee is a charge by the lender for setting up a loan or financial agreement. It is like an admin fee to look through your application and set up documents.

Can you really afford the repayments?

The monthly repayments for a single loan may be smaller in some cases, but you might end up paying off the debt for longer or paying more interest in the long term. People often take out loans because they cannot afford day-to-day costs.

If your monthly repayment means you still cannot afford essential things like food and clothing, then consolidation is not going to help you. There is a risk you may need to take out more credit while still paying off the first loan.

Consolidation cannot fix debt problems alone

It can make people feel like they are in control of their finances by joining lots of debts together. But a consolidation loan does not stop you from needing to take out more credit later on. And it will not solve the deeper reasons why you have debt that is hard for you to manage.

There are other ways to feel more in control of your debt than taking out a loan. Use our debt consolidation calculator to find out if debt consolidation or debt advice is right for you.

Debt consolidation or debt management?

Debt consolidation and debt management are two different things.


  • Debt consolidation means you are taking out new credit to pay your debts
  • Debt management is where you, or a debt management provider, agree affordable payments with the companies you owe money to. Sometimes the debt can even be written off

Managing your debts can be in the form of a formal debt solution, like an individual voluntary arrangement (IVA). Or if you live in Scotland, there is the Debt Arrangement Scheme (DAS).

Or there are informal solutions like a debt management plan (DMP).

A DMP has some of the same benefits as consolidation:


  • One monthly payment that goes towards all your debts
  • Fewer creditors to deal with as the DMP provider will speak to them for you

The main difference is that DMPs do not involve taking out further credit. Instead, creditors usually agree you can make smaller payments to your debts, based on what you can afford to pay.

There is the possibility of interest and charges being frozen too, if your creditors agree. And, DMPs are flexible. So if your circumstances change, your budget can be changed too.

Many debt management companies provide DMPs, but some charge fees. Our DMPs have no set-up charges or monthly fees. All the money you pay goes towards paying off your debts.

If you live in Scotland, a debt payment programme (DPP) also gives you extra protections against enforcement action and stops interest and charges.

Find out more about the differences between debt consolidation and debt management.

Is consolidating debt worth it?

For some people, it can be a good way to reduce the stress of making many monthly payments towards debts. For others, it can be a slippery slope into more debt.

It is important to understand the reality behind the claims made in consolidation adverts.

Claim: "Consolidate all of your debts into one place"

Reality: Having a debt consolidation loan does not stop you using credit. Many people end up taking on new debts, like credit cards, while they have the loan. This means paying back more than one company again.

Claim: "Free government debt consolidation"

Reality: This does not exist. Any company saying there are government debt consolidation schemes is misleading you.

Claim: "Reduce your monthly payments"

Reality: Paying less each month means taking longer to pay off debts. The longer you have the consolidation loan, the more interest you take on.

Claim: "Reduce your interest rates"

Reality: Because debt consolidation loans last longer, they often end up with higher total interest to pay.

Claim: "Manageable monthly payments"

Reality: Debt consolidation loan payments are only manageable if they fit into a proper household budget that you can stick to. Your budget may change over time, and loan terms cannot be easily changed to suit new circumstances.

There may be a debt solution that suits your situation better than a consolidation loan. Use our debt consolidation calculator to find out if debt consolidation or debt advice is right for you.

What are secured and unsecured debt consolidation loans?

Some consolidation loans need you to secure the loan against your home. This means if you fall behind or cannot afford payments, the lender could repossess your home and sell it to get their money back. They are also sometimes called ‘homeowner loans’.

Unsecured means the loan is not linked to your home.

For more information, read our guide on secured and unsecured debt consolidation.

Unlock your options as a homeowner


Find out more about how to deal with mortgage arrears, fixed rate ending, how debt can affect your home - and more.

Read our guides

Is debt consolidation bad for your credit score?

When you first take out a loan, it is likely your credit score will temporarily dip. This is because the lender makes a ‘hard credit check’ when you apply.

If you keep up with payments on time and in full, it can help to boost your credit score in time.

If the cost of the new loan is hard to manage, and you miss payments, this will show on your credit file and affect your credit score.

Read more about missed payments and your credit file.

Can I get a consolidation loan with poor credit?

Consolidation loans for people with poor credit exist, but you will likely pay higher interest rates and may not be offered the best deals.

You would need to check the interest rates carefully to see if a consolidation loan will actually save you money and help you pay off your debt quicker.

For more information, read our guide to consolidation loans with poor credit.

Government debt consolidation. Is it real?

In a word … no. There is no government backed debt consolidation scheme. Some debt management companies sometimes use this wording to make you think their services are free or ‘official’.

There are some government backed ways to deal with debt though, like debt relief orders (DRO), IVAs, DAS in Scotland, and more.

Find out more about government debt consolidation and what it really means.

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