How to consolidate debt and reduce your monthly repayments

Wondering how to consolidate debts or whether it’s the right option for you? As living costs continue to rise, find out whether consolidating your debts could help ease the financial strain.

Women stressed with laptop wondering how to consolidate her debts
(Image credit: Alamy / Future)

Wondering how to consolidate debt or whether it’s the right option for you? As living costs continue to rise, find out whether consolidating your debts could help ease the financial strain.

Knowing how to consolidate debt is vital as the cost of living soars and monthly budgets gets tougher to manage. With bills rising and National Insurance going up too, it has never been more crucial to get your finances in the best shape possible. That includes sorting out outstanding debts such as credit cards, payday borrowing and personal loans. You may not be in a position to repay these debts, but it may be possible to cut the cost of servicing them.

Myron Jobson, senior personal finance analyst at interactive investor, says: “Everyday costs are continuing to surge. We’re spending more just to heat our homes, have hot showers, to cook, and to fill up the tank. Having a variety of debt payments looming each month will only add to your financial woes.”

Debt consolidation could be one way to ease the pain. Find out what it means to consolidate your debt and whether it’s a sensible option for you with our guide.

How to consolidate debt

The key to consolidating your debts is choosing the right option for your circumstances. Debt consolidation means taking out a new unsecured loan to pay off all your outstanding debts. This leaves you with just one loan to repay each month. The monthly repayment should come to less than the total of the repayments you’re currently making.

In practice, there are two ways of achieving that objective. In an ideal world, you’ll be able to arrange new borrowing at a lower interest rate than the rate you’re currently paying. The alternative is to move to an arrangement where you repay what you owe over a longer period. This may increase the total amount of interest you pay. But it could reduce your monthly repayment, helping with the squeeze on your finances.

Laura Suter, head of personal finance at AJ Bell, says: “Consolidating debt onto a cheaper credit card or a new personal loan is relatively easy to do. But the number of options and low-interest deals available to you depends largely on your credit rating. Start by checking your credit report to make sure it’s accurate, and check your rating. Then you’ll need to list out all the debt you have and where the borrowing is.”

Options for debt consolidation

When considering how to consolidate debt, you could use an ordinary personal loan. However, if you’ve missed a few payments or your credit score has slipped, you might need a dedicated debt consolidation loan for bad credit.

If you own your own home you may also be offered a secured debt consolidation loan. This is sometimes called a homeowner loan and is arranged against your property. These are easier to get if you’ve got a lower credit score because the lender has security in the form of your home. But they are higher risk for you, as your home will be at risk if you struggle with repayments.

A balance transfer credit card might also be an option if you’re only consolidating credit card debts. These are often available on a 0% basis. But if you're wondering how do credit cards work, make sure you do your research before you apply for one. With a balance transfer card, there will be no interest to pay for a period, which will stop your debt from growing any larger while you repay it. But you’ll need a decent credit score to get one.

With a new balance transfer credit card, you simply give the provider the details of the outstanding balances you have on other credit cards. Your new credit card provider will then do all the legwork and transfer the balances onto the new card.

However, personal finance expert Laura Suter points out that consolidating debts with a 0% balance transfer card does take discipline. “If you’re doing this, you need to make sure you have a plan to pay off the debt during that time, as the rate will shoot up once the 0% offer period is over. If not, you’ll have to make a note to shift the debt once the deal has ended.

“People with low credit ratings may not be able to access these deals, but it’s still worth looking if a cheaper rate is available than what you’re currently paying.”

Do your research on how to consolidate debt and check your eligibility

Whether you’re exploring loans or credit cards, it’s important to do your research. This is necessary to get the best rate, but also to check your eligibility. This is because any rejected application will leave a black mark on your credit record. John Webb, senior consumer affairs executive at credit rating agency Experian, says: “If you’re looking to consolidate debt, use comparison services to see the types of credit you’re likely to be accepted for. You can also know the limits and rates before you apply, so it won’t affect your credit score.”

Most comparison sites now offer free eligibility checkers. These will let you know whether you’re likely to be accepted for a loan or credit card, without it leaving a ‘footprint’ on your credit record.

The pros and cons of debt consolidation


  • ✅  You may be able to get a lower interest rate on your debts. This will reduce your monthly repayment and could help you become debt-free faster.
  • ✅  By choosing a longer loan term, you may be able to reduce your monthly repayments. This can give you some much-needed financial breathing space.
  • ✅  When dealing with just one lender and have one repayment to make each month, you may find it less stressful staying on top of your borrowing.


  • ❌  The interest rate on your new loan may be higher if you’ve missed a few repayments or your credit score has deteriorated.
  • ❌  If you go for a longer loan term to make repayments more manageable, you’ll end up paying more interest overall. You’ll also be repaying the debt for longer.
  • ❌  Your home may be at risk if you go for a secured debt consolidation loan and you struggle with repayments
  • ❌  There may be charges, for example, set-up fees or exit fees for paying off certain loans early.

How to consolidate debt in the easiest way

The best way to consolidate your debts is usually with a personal loan (which won’t be secured to your home). Or, if we’re only talking about smaller credit card debts, a balance transfer card – a 0% one if you’re eligible.

However, there are alternatives. When you research debt consolidation online, you may see adverts from debt management companies offering to consolidate your debts. This may well be through a debt management plan. Here the company liaises with your creditors on your behalf and sets up a plan with more affordable repayments.

However, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says while this route might look appealing and give you a degree of breathing space, you will end up paying more overall.

She warns: “If you use a loan consolidation company, it will charge fees that will make your borrowing more expensive rather than cheaper. The monthly cost will be cut, but it will be spread over a longer period of time, so you’ll be paying interest for longer.”

For this sort of arrangement, you are likely to pay a set-up fee as well as a monthly handling fee. This could be in the region of 20% of your payment.

Does consolidating debt affect my credit score?

When you take out a loan or credit card it will have an impact on your credit score – irrespective of whether you’re consolidating debts. Once you’ve taken out any loan, it’s important you keep on top of repayments. Over time you should see your credit score go up. But it will slip if you miss or are late making repayments.

Experian's John Webb says: “When you apply for, and open, a new credit agreement, your credit score will probably go down slightly. This will happen for around six to 12 months until you build a positive repayment history.”

Woman checking her credit score on a laptop

How much can you save by consolidating debts?

How much you stand to save by consolidating your debts will vary hugely depending on your situation. If you can transfer your debts onto a lower rate loan or credit card, you will cut your borrowing costs. With a 0% balance transfer card, you could stop any further interest being added to your debts, so long as you pay it off during the required period.

It may be that your biggest priority is to make your monthly repayments more affordable. Debt consolidation can help with this. But it’s important to be aware that this will usually mean you end up paying your debts back over a longer period. This will increase your overall borrowing costs.

How much debt do you need to have in order to consolidate?

There’s no fixed amount at which debt consolidation becomes an option. The key is whether it can cut your borrowing costs. Consolidating several credit cards with just a few hundred pounds outstanding could be a sensible move if you’re eligible for a 0% balance transfer card.

The minimum you can borrow with a personal loan is normally around £1,000 rising to a maximum of £25,000. Secured loans will often start at £10,000.

Bear in mind that interest rates on loans often decrease the more you borrow. This means that if you’re using loans, in ‘numbers terms’, the savings potential for consolidating larger debts will likely be greater than for smaller debts.

Is debt consolidation a good idea?

Consolidating your debts certainly makes sense if you can access lower interest rates. It may also make sense if you’re struggling to keep up with repayments and need to repay over a longer period in order to reduce your monthly bill. It is always a good idea to manage your finances as efficiently as possible, including paying as little as possible to manage borrowing.

Sue Anderson, head of media at debt charity StepChange explains: “If debt consolidation enables you to replace more expensive credit with less expensive credit, with the added convenience of a single monthly payment that is affordable for you, then it may be worthwhile. Consolidating debt can be a sign of underlying affordability problems or being financially overcommitted, and if this is the case then consolidation will not necessarily solve the underlying problem.”

Personal finance analysts Sarah Coles agrees. “If you see this as a ‘get-out-of-jail-free card’, and start building up loans on credit cards again, you’ll end up in a worse position,” she warns. “You need to think of it as a step towards solving a debt problem rather than a solution in itself.”

If you aren’t sure whether debt consolidation is right for you, try StepChange’s debt consolidation calculator or seek professional debt advice which is available free of charge from a range of debt charities including StepChange and National Debtline.

Related video: How to pay off your debts 

Personal finance expert

As well as being a mum, Rachel Lacey is a freelance journalist with more than 20 years' experience writing about all areas of personal finance and retirement planning. After 17 years at Moneywise magazine as both writer and editor, Rachel now writes for a variety of websites and newspapers as well as corporate clients. She is passionate about financial education and simplifying money matters for all.