You’ll hear the term ‘debt consolidation’ a lot in the media and on money saving websites like Saving Superstar. But what is it and how can it help?
That’s the topic of today’s post. I’ll explain what debt consolidation is, how it works and whether it can be a good idea or not.
By the end, you’ll have everything you need to know to make an informed decision about whether it’s right for you.
What is debt consolidation?
Debt consolidation takes several debts and collects them into a single loan or repayment plan so you can pay it off more easily.
For example, let’s say you owe on a couple of credit cards, a store card and are living in your overdraft.
Debt consolidation would take a personal loan (or similar product) to pay all those off. You’d then end up with one monthly payment and one debt.
You can consolidate debts such as:
- Credit cards
- Store cards
- Loans
- Overdrafts
- Payday loans
How does debt consolidation work?
The goal is to swap multiple high-interest debts for a single lower-interest repayment.
There are several ways to do this:
Secured loan: If you’re a homeowner, you could take out a secured loan against your property. Rates are usually lower than credit cards or overdrafts, but you risk your home if you miss payments.
Unsecured loan: Works in the same way but isn’t tied to your home. Interest rates are usually higher than secured loans, but you don’t risk your property.
0% balance transfer card: Using a 0% interest credit card to pay off higher-rate cards is also a form of consolidation. The advantage is no interest (for a limited period), but you need to clear the balance before the promotional window ends.
Household debt trends in the UK (2025 update)
By the end of 2024, the UK household debt-to-income ratio had dropped to 126%, its lowest level since 2001.
Mortgage debt servicing costs remain stable at around 7% of income, partly because wages have risen and interest rates are expected to fall.
This means that for many households, consolidation loans are more affordable than they were a few years ago.
Lower average borrowing costs create an opportunity to simplify debts and potentially pay them off faster.
Can I get a debt consolidation loan?
You don’t need a product labelled “debt consolidation loan.” Any personal loan can be used to pay off multiple debts.
If your credit score is still healthy, you’ll have more lender choice and better rates.
If you’re carrying large debts or missed payments, lenders may be cautious. In this case, you may need to approach a specialist lender.
Some major UK banks offering consolidation loans in 2025 include NatWest, HSBC, Barclays, Lloyds, and Santander, with loan sizes ranging from £1,000 to £50,000.
Always compare interest rates, term lengths and any early repayment charges.
For more on how borrowing affects your score, see: How to improve your credit score in 3 months or less.
Debt consolidation with bad credit
If you have bad credit, you may still qualify for a loan, but your options are different:
- Secured consolidation loan: Lower rates, larger amounts, but you risk the asset (usually your home) if you default.
- Unsecured consolidation loan: No collateral required, but interest rates are higher and borrowing limits lower.
Always calculate the total repayment cost before committing. Sometimes a Debt Management Plan or even an IVA can be more suitable.
Formal insolvency vs. debt consolidation
In July 2025, over 10,500 people entered formal insolvency in England and Wales, with Debt Relief Orders (DROs) and Individual Voluntary Arrangements (IVAs) making up the majority. DROs in particular have grown in popularity since the £90 fee was scrapped in 2024 and eligibility thresholds were raised.
Debt consolidation is less formal than insolvency solutions. It helps if your debts are large but still manageable, while insolvency is designed for those who cannot realistically repay what they owe.
See also: How to manage your money after being made redundant.
Regulatory changes to be aware of
From July 2026, Buy Now, Pay Later (BNPL) will fall under full FCA regulation. Lenders will have to run affordability checks, provide clear terms, and offer customer protections via the Financial Ombudsman.
For many borrowers, this makes BNPL less risky than before, but also less “easy credit.”
In practice, more people may turn to consolidation loans instead of juggling multiple BNPL agreements.
Is debt consolidation a good idea?
Debt consolidation can be a good idea. As you saw above, much depends on the amounts we’re talking about.
Advantages of debt consolidation loans
Here are some key advantages of debt consolidation loans:
Loans are usually cheaper than cards – You can pay off multiple high interest debts with a lower interest loan.
Easier to manage – One single monthly payment is easier to manage than multiple payments. Payment will be automated and you may even be able to overpay your loan when the situation allows.
Repair your credit score – If you missed payments or fell behind, your credit score may have been impacted. Consolidate everything, make every payment and you’ll repair any damage over time.
Take control of your finances – Finally, a debt consolidation loan can help you take back control of your money. You’re not just trying to keep up with debt, you’re in control of it and your financial destiny.
Disadvantages of debt consolidation loans
There are a couple of downsides to debt consolidation loans you should be aware of:
More for longer – Debt consolidation loans can mean borrowing a potentially significant amount of money for a long time, perhaps up to 5 or 10 years.
Behaviours still need to change – Debt consolidation loans can help manage the situation but they cannot stop it happening again. Whatever happened to land you in this situation will need to be prevented. Whether that’s changing your situation or your mindset.
Secured loans come with risk – Secured debt consolidation loans are placed against your home. Miss payments and life could get much worse!
Alternatives to debt consolidation loans
A debt consolidation loan is an answer to a debt problem. It’s not the only answer.
You can negotiate with everyone you owe money to and try to come up with a payment plan that’s more manageable.
You could approach Citizens Advice to help you with a debt management plan. This is a formal agreement with creditors to arrange to pay back at a more manageable rate.
You could approach other debt management charities for help.
The key thing to remember is to do something about it. There’s no point putting your head in the sand as the debts aren’t going to go away.
It really does pay to be proactive and take control of the situation.
There will be many times you feel out of control when you’re in debt but this is one of the few times you’ll be in full control. Don’t miss that opportunity.
Debt consolidation FAQs
1. How has UK household debt changed recently?
Household debt relative to income is now at its lowest in over two decades (126% at end-2024). Stable mortgage servicing costs make consolidation loans more viable for many families.
2. What’s the difference between debt consolidation and insolvency?
Consolidation restructures your debt into one manageable repayment. Insolvency options like DROs or IVAs are formal legal processes for people who cannot repay what they owe.
3. Can I get a debt consolidation loan with bad credit?
Yes, but options are limited. Secured loans may be available at lower rates, while unsecured loans will cost more. Specialist lenders sometimes help in these cases.
4. How will new BNPL rules affect me?
From July 2026, BNPL will be regulated under consumer credit law. This means more checks, stronger protections, but less flexibility. For some, a consolidation loan may be simpler.
5. Which UK banks offer consolidation loans in 2025?
NatWest, HSBC, Barclays, Lloyds, and Santander all offer personal loans that can be used for debt consolidation. Always compare APRs, repayment terms, and early repayment penalties.
