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Debt consolidation isn't right for everyone - we explain the pros and cons
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A debt consolidation loan lets you pay off multiple debts with one new loan from a single provider and one monthly payment. It won’t reduce what you owe, but could lower your interest rate and make repayments more manageable.
When you apply for an unsecured debt consolidation loan, which is a personal loan for debt consolidation, lenders look at your financial status and credit history to decide if you’re eligible.
You won’t have to put up an asset as collateral.
You secure the loan against a valuable asset, such as your home. You can typically get a lower interest rate with a secured loan than an unsecured loan – but if you can’t pay back the loan, you could lose the asset you secured it against.
Debt consolidation loans can be used to pay off various types of debt, including:
Personal loans
Did you know?
30% of people who search for loans through us are aiming to consolidate their debts. On average, these customers apply to borrow £12,0892.
Easier to manage your debt
One payment, made once a month, is easier to track than several
Could save you money
Taking out a loan with a lower interest rate than your old debts means you could pay less per month than you did previously, or clear the debt more quickly
Could improve your credit score
Making regular repayments and reducing your debt is good for your credit rating
Applying could temporarily hit your credit score
When you apply, a hard credit check will be carried out, which will leave a mark on your credit file
You might face an upfront cost
Check the potential savings of the new loan's lower interest rate aren't outweighed by any early repayment or arrangement fees
Secured loans carry risks
If you secure a loan against your home and don't keep up your repayments, the property could be repossessed. Unsecured loans don’t pose this risk
The total cost of your loan will depend on on a range of factors, including...
Debt consolidation loans for people with a bad credit score are available, but your choice of providers may be limited. Interest rates on the loan will probably be higher than for others with higher credit scores, and the amount you can borrow lower.
A secured loan might offer a lower interest rate. But be aware that if you take on debt for longer, you could pay more overall. And if you default on the repayments, you risk losing the asset you secured the loan against, which will usually be your home.
Did you know?
The average personal debt in the UK (excluding mortgages) is around £2,400 per adult, according to Debt Advisory Services, an ethical debt advisory company in the UK.
This figure includes unsecured debts such as personal loans, credit cards, overdrafts and store cards.
If you include all household borrowing, such as car finance and student loans, the average debt per person is between £7,000 and £8,000.
Eligibility criteria can vary between providers, but in general you’ll need to:
Be aged 18 or over
Be in paid employment or have a regular income
Be a UK resident
Have a good credit history: some lenders require that you haven’t been declared bankrupt, had a County Court Judgment (CCJ) or an Individual Voluntary Arrangement IVA within a set period.
Compare The Market Limited acts as a credit broker, not a lender. To apply, you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.
Pay off multiple existing debts using one new loan from a single provider
Some lenders offer loans specifically for debt consolidation. Other providers allow you to take out a personal loan for debt consolidation.
When you compare loans with us, we’ll ask you what you want to use the loan for. Select debt consolidation from the drop-down menu. We can then show you loans you’re likely to be accepted for, from lenders that allow debt consolidation.
If you have a good credit history, you probably won’t need a guarantor to get a debt consolidation loan.
But if you have a bad credit rating or no credit history, a guarantor may offer added security for the lender and could increase your chances of getting a loan.
With a debt consolidation loan, you should borrow just enough money to pay off your debts. Borrowing more than you need will add to the cost of repayments and increase your debt.
You don’t have to pay off all your debts with a debt consolidation loan, but the main benefit is that you only owe money to one lender instead of several.
But if you have a particularly good interest rate on one of your existing loans, you may be better off not consolidating that one.
A debt consolidation loan will usually be paid straight into your bank account, so you can arrange to clear each of your debts separately.
Yes, you can repay a debt consolidation loan early, but some lenders may charge an early repayment fee.
You’ll need to get in touch with your lender and ask for an early settlement statement, which will show how much you’ve paid, what’s left to pay and the size of any early repayment charge (ERC).
You can then check to see if any ERC outweighs any savings you’d make by not paying interest on your loan debt.
Charlie is a senior commercial leader with close to a decade of experience across the UK’s leading personal-finance and comparison platforms. Before joining Compare the Market as Head of Commercial in 2024, he held senior commercial roles at TotallyMoney and MoneySuperMarket Group.
1 Based on Trustpilot ratings (July 2026).
2 Correct as of June 2026.
What our expert says...
“Although potentially a last resort, debt consolidation loans can help you manage your debt more efficiently. Check to see if you’ll be charged a fee for paying off your other loans early, as this will affect the savings you’ll make with a debt consolidation loan.”