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Debt consolidation isn't right for everyone - we explain the pros and cons
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^Correct as of September 2026.
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A debt consolidation loan lets you pay off multiple debts with one new loan from a single provider.
It won’t reduce what you owe, but could lower your interest rate and make monthly repayments more manageable. If you spread your repayments over a longer term, you’ll usually pay more interest overall.
Here’s how you can combine your debts into one loan and one monthly repayment:
An unsecured debt consolidation loan is a type of personal loan. When you apply, lenders look at your financial status and credit history to decide if you’re eligible.
You won’t have to put up an asset such as your home as security.
With these 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.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
Debt consolidation loans can be used to pay off various types of debt, including:
Did you know?
29.5% of people who search for loans through us are aiming to consolidate their debts. On average, these customers apply to borrow £13,2432.
A debt consolidation loan could make your debts easier to manage and could reduce your repayments, but there are potential costs and risks to consider too.
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
Structured repayments
The repayments are regular and designed to clear your balance, unlike a credit card (where making only the minimum payment each month can mean it takes much longer to clear the debt) and an overdraft
Could improve your credit score
Making regular repayments and reducing your debt is good for your credit rating
You won’t automatically save money
You might pay more overall, especially if you choose a longer term that means paying more interest. Other ways of paying off the debt, such as a 0% credit card, could be cheaper
You might face an upfront cost
Check for any arrangement fees, or fees for paying off your existing loans early
It won’t fix the cause of money problems
If you struggle to stay on top of your current debts, replacing them with another debt may not help
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. Applying for credit when you already have debts could make some lenders think you’re higher risk
The total cost of your loan will depend on a range of factors, including...
Debt consolidation can cost you more if the interest and fees on the new loan add up to more than you'd pay on your existing debts. Look out for early repayment charges on your old loans and arrangement fees on the new one.
A lower monthly payment doesn't always mean you'll pay less overall, particularly if the loan runs for longer. Before you consolidate, compare the total amount repayable on the new loan with what you have left to pay on your existing debts.
Be careful with firms that offer to sort out your debts for a fee.
The Financial Conduct Authority (FCA) warns that some debt advice firms use high-pressure tactics to push people into paid-for debt solutions that may not suit them. Red flags include repeated calls, pressure to agree to something quickly or not saying who they work for.
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 may be 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.
Lets you move debt from one or more credit cards to a new card with a different provider. You’ll typically have to pay a fee to transfer the debt over, but you could benefit from a lower or 0% interest rate for a fixed time.
With a 0% balance transfer card, make sure you pay the debt off before the 0% period ends to avoid having to pay interest at the lender’s higher standard rate.
Allows you to transfer money from a credit card into your bank account. You can then use the cash to pay off your debt. There’s often a money transfer fee, typically 3% to 5%, but some cards offer 0% interest on the outstanding balance for a set period.
Ideally, pay off what you owe in full before the end of the 0% period. Once that’s over, you’ll be charged interest on what you owe.
If you have enough equity in your home, remortgaging could let you free up some cash to pay off your existing debts.
While headline interest rates on a mortgage can be lower, you may need to extend your mortgage term. This can cost you a lot of money in the long run.
If you default on your mortgage repayments, you risk losing your home. It’s best to get advice from a mortgage broker before making this decision.
If you’re struggling to pay off your debts, speak to a debt adviser. They can help you find a way to take control of your finances and pay back what you owe in affordable monthly instalments. Options include:
Debt management plans – an agreement between you and your creditors to pay all of your debts in affordable monthly payments.
Administration Order – if your debts are under £5,000 and you have a County Court Judgment (CCJ), you can apply to make one payment a month to your local court. The court will then divide this money among your creditors.
Individual Voluntary Arrangement (IVA) – an agreement to make regular payments to an insolvency practitioner, who then divides the money between your creditors.
MoneyHelper has information on debt management and where you can get free debt advice. You can also get free debt advice from Citizens Advice and National Debtline.
Did you know?
The average household consumer debt in the UK (excluding mortgages) is £8,304, according to 2026 analysis by Clearscore.
Eligibility criteria varies 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.
Find out more about loans and clearing your debts
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 there's only one payment to keep on top of each month.
But if the interest rate on one of your existing loans is lower than you can get on a debt consolidation loan, you may be better off not consolidating that one - as long as you'll be able to keep track and pay off both.
A debt consolidation loan will usually be paid straight into your bank account. You'll then need to use it 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.
It could, but usually only for a short time.
When you apply, the lender runs a hard credit check, which credit reference agencies record on your credit file. Applying for credit when you have existing debts could be a red flag for some lenders.
Checking your eligibility with us first uses a soft credit check, which won’t affect your score.
Making your repayments on time could help improve your credit score over time.
Charlie is a senior commercial leader with almost a decade's 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 (October 2026).
2 Correct as of September 2026.
What our expert says...
“Debt consolidation loans have drawbacks, but used correctly they 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 could make with a debt consolidation loan.”