A debt consolidation loan rolls several existing debts into one new loan, leaving a single monthly repayment to manage. That can be useful. It can also cost more in the long run if you are not careful about the terms.
What a debt consolidation loan does
- Combines multiple debts (credit cards, overdrafts, personal loans) into one balance.
- Replaces variable or revolving payments with a fixed monthly amount over a set term.
- May carry a lower interest rate than the debts being replaced, but this depends entirely on your credit profile and the rate you are offered.
The key figure to check is the total amount repayable, not just the monthly payment. A lower monthly payment often comes from spreading the debt over a longer period. That can mean paying more overall, even when the rate looks lower.
Why this matters now
The Bank of England base rate is currently 4.25% (as of May 2025). When the base rate is elevated, lenders' own funding costs rise, and those costs are typically passed through to personal loan pricing. The rate you see advertised reflects the base rate, the lender's own risk margin, and your individual credit record. A representative APR shown in an advertisement applies only to 51% of accepted applicants; the rate you receive may be higher.
MoneyHelper notes that consolidating debts can help people feel more in control of their finances, but cautions that it does not reduce the debt itself. If the underlying spending or circumstances that created the debt have not changed, a consolidation loan alone will not resolve the problem.
Who may be affected
- People managing several credit repayments at once who want to reduce the number of payments each month.
- Anyone paying high-rate credit card balances where a lower-rate personal loan might reduce overall interest, depending on the rate you are offered, provided the loan term is not extended unnecessarily.
- People with a stable income and a reasonable credit record who are likely to qualify for a competitive rate.
Be careful if you are already missing payments or using credit to cover everyday essentials. In that situation, a new loan adds another obligation. Free debt advice is usually a safer first step.
If the loan would be secured on your home, the risk is higher: missed payments could put your property at stake. See the guide to secured loans before going down that route.
What the worked example shows
Suppose you have three debts totalling £8,000:
| Debt | Balance | Monthly payment |
|---|---|---|
| Credit card A | £3,000 | £90 |
| Credit card B | £2,500 | £75 |
| Personal loan | £2,500 | £80 |
| Total | £8,000 | £245 |
A consolidation loan at a representative APR of 9.9% (broadly mid-market for a good-credit borrower as of May 2025) over three years would cost approximately £257 per month and around £1,260 in total interest. That is a modest increase in monthly cost but a clear total figure to compare against your current debts.
If the same £8,000 were spread over five years at the same rate, the monthly payment falls to around £170, but total interest rises to roughly £2,200. The monthly saving comes at a price.
These figures are illustrative. Your actual rate will depend on your credit file and the lender's assessment. Use a loan repayment calculator to model your own numbers before applying.
A note on free debt help
If debt is causing serious pressure, a consolidation loan is not always the right answer. Free, independent advice is available:
- StepChange: 0800 138 1111
- National Debtline: 0808 808 4000
- MoneyHelper: 0800 138 7777
These services can review your full picture and suggest options, including debt management plans or breathing space, that a lender cannot offer.
What to read next
- Debt consolidation guide, a full explanation of how consolidation works, what it costs, and when it is not the right choice.
- Personal loans guide, what to compare when shopping for a personal loan.
- Loan interest rates explained, how APR works and why the representative rate may not be the rate you receive.
Sources
- MoneyHelper, debt consolidation guidance and total cost warnings.
- Financial Conduct Authority, representative APR rules and consumer credit regulation.
- Bank of England, base rate data underlying current personal loan pricing.