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Debt Consolidation
A debt consolidation loan combines multiple existing debts, such as credit cards and personal loans, into one new loan with a single monthly payment. This guide explains how they work, the difference between secured and unsecured options, and what to weigh up before you decide, in plain English.
A debt consolidation loan is a single loan used to pay off multiple existing debts, such as credit cards, store cards, and personal loans, so you're left with one monthly payment instead of several. Consolidation loans generally come in two forms:
The right option depends on how much you need to borrow, whether you own your home, and your credit history. A debt consolidation loan can simplify your monthly finances, but it doesn't reduce the total amount you owe, and extending the loan term could mean paying more in interest overall.
A debt consolidation loan works by paying off several existing debts and replacing them with one new loan, ideally with a single, more manageable monthly payment. Instead of tracking multiple due dates, balances, and creditors, you deal with one lender and one repayment schedule.
There are different types of debt consolidation loans, and the right one for you depends on whether you own your home and how much you need to borrow. For a closer look at the mechanics involved, our guide on how do debt consolidation loans work goes into more detail on each stage.
How it works
You apply for a new loan
You, or your advisor on your behalf, apply for a loan large enough to cover the debts you want to combine. This can be secured against your home or unsecured, depending on your circumstances.
The lender settles your existing debts
Depending on the lender, funds are either paid directly to your existing creditors or released to you so that you can pay them off yourself.
Your old accounts are cleared
Once your existing balances are settled, those separate cards and loans no longer carry a balance you need to manage.
You make one monthly payment
From then on, you make a single monthly payment to your new lender, over a fixed term agreed when you took out the loan.
Debt consolidation
Our advisors compare secured and unsecured options from a wide range of lenders to help you find a way to manage your debts that fits your circumstances.
Debt consolidation loans generally come in two forms: secured and unsecured. The one that suits you best depends largely on whether you're a homeowner, how much you need to borrow, and your credit history.
If you own your home and have built up equity, a secured loans can allow you to borrow larger amounts, because the lender has your property as security. If you're not a homeowner, or you'd rather not use your home as collateral, an unsecured debt consolidation loan may be more appropriate, though the amount you can borrow and the terms on offer will depend heavily on your credit profile.
A secured debt consolidation loan, sometimes arranged as a second charge mortgage, lets homeowners borrow against the equity in their property. Because the loan is backed by your home, lenders are often willing to lend larger amounts and can be more flexible about past credit problems, including CCJs or defaults. This makes it a common route for homeowners with several debts to consolidate, or those who don't qualify for a large enough unsecured loan.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.
An unsecured debt consolidation loan doesn't use your home or any other asset as security. Approval and the amount you can borrow depend on your income, existing commitments, and credit score. Because there's no asset backing the loan, lenders take on more risk, which is reflected in tighter eligibility criteria for larger amounts. Unsecured loans tend to suit borrowers who don't own a home, or who have a smaller amount of debt to consolidate.
If you're looking to consolidate debt, most forms of unsecured borrowing are eligible, though a few things typically aren't, such as student loans, council tax arrears, or money owed to HMRC. Here's what you can usually include:
What's eligible
Debt consolidation can make managing your finances easier, but it isn't the right solution for everyone. Before you decide, it helps to weigh up the potential benefits against the practical trade-offs.
Whether debt consolidation works out cheaper overall depends on the term and total cost of credit you're offered compared with what you're currently paying across your existing debts. Comparing options with an advisor before you commit gives you a clearer picture of the true cost.
Wondering who can get a debt consolidation loan? Lenders typically look at your residency status, income, existing commitments, and credit history when assessing an application. For secured options, whether you own your home and how much equity you have also matters. Read our full breakdown of who can get a debt consolidation loan for more detail on lender criteria.
Bad credit debt consolidation is possible, particularly through secured lenders who take a broader view of your circumstances, but the options and amounts available will vary depending on how severe and recent any credit issues are.
Lenders don't just look at your credit score in isolation. For secured consolidation loans, I've seen applications approved despite a low score because the borrower had strong, verifiable income and enough equity in their home to keep the loan-to-value comfortable. It's the whole picture that counts, not one number.
What lenders look for
Taking out a debt consolidation loan affects your credit score in different ways at different stages of the process. Understanding what happens at each stage can help you avoid surprises.
Credit score impact
Checking your eligibility
A soft search shows you which lenders are likely to accept you, without leaving a mark on your credit file.
Applying for the loan
A full application involves a hard credit search, which can cause a small, temporary dip in your score.
Making repayments
Keeping up with your new, single monthly payment and reducing your overall credit utilisation can help your score recover and improve over time, though there's no guaranteed outcome and results vary from person to person.
A debt consolidation loan isn't the only way to deal with multiple debts. Depending on your circumstances, one of these debt consolidation alternatives might suit you better:
For a closer look at how a consolidation loan compares with other routes, see our top debt consolidation options.
If you're struggling to keep up with payments or feel overwhelmed by debt, free and impartial support is available from MoneyHelper (0800 138 7777) and Citizens Advice. These organisations can help you understand all of your options before you commit to any borrowing.
Access expert advice with no pressure to proceed
If you've decided a debt consolidation loan is the right move, here's what applying through Money Saving Advisors involves.
The process
Tell us about your debts
Share details of what you owe and your circumstances. We check your eligibility with a soft search that doesn't affect your credit score.
We compare a wide range of lenders
Your advisor reviews options from mainstream and specialist lenders, including those who consider bad credit for secured loans.
We handle the application
Once you choose a deal, we manage the paperwork and liaise with the lender on your behalf, keeping you updated throughout.
Common questions
A secured debt consolidation loan is backed by your home, usually through a second charge mortgage, which means you can typically borrow larger amounts and lenders may be more flexible about past credit problems. The trade-off is that your home is at risk if you don't keep up repayments. An unsecured debt consolidation loan doesn't use any asset as security, so approval and the amount available depend mainly on your income and credit score. It's generally used for smaller amounts and suits borrowers who either don't own a home or would rather not put it at risk.
Bad credit doesn't automatically rule you out. What matters is the type and severity of the adverse credit on your file. A single missed payment from a few years ago is treated differently to a CCJ, an IVA, or bankruptcy. If you're a homeowner, a secured loan may be accessible even where unsecured options are limited, though this puts your property at risk if you don't keep up repayments.
How much you can borrow depends on whether you choose a secured or unsecured loan, along with your income, existing commitments, and credit history. Secured debt consolidation loans are typically available from around £10,000 up to £500,000, depending on the equity in your home. Unsecured loans are usually available up to around £25,000, though the exact amount depends on the lender's assessment of your circumstances. Speak to an advisor for a personalised idea of what you might be able to borrow.
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Debt Consolidation
Speak to our advisors about consolidating your debts. We compare a wide range of lenders to find the right solution.
