DebtPersonal Finance

Is Consolidation The Best Way To Deal With Debt?

Stressed young woman holding paper document

Dealing with debt can be a really confusing experience. You start off keeping track of your loans, and thinking that you have enough to cover them, but one miscalculation or late payment could push you into financial trouble.

Often, we don’t think there’s any other option for dealing with debt than continuing to pay big interest rates, or, if we’re badly in debt, hoping that the problem will simply go away.

The truth is, if we do’t deal with our debt: whether that’s through debt consolidation or government approved schemes like Individual Voluntary Agreements (IVAs), debt collection companies like Cabot Financial will continue to make our lives hell, and we could lose our homes and other valuable assets.

In this article, we’ll cover exactly how debt consolidation works, your options for debt consolidation, and whether debt consolidation is the best way to deal with debt.

Is consolidation the best way to deal with debt?

Debt consolidation can be a good way to deal with debt, as it allows you to put all your debts on a single, low-interest loan, possibly reducing the amount of interest you pay, and helping you clear your debt faster.

However, debt consolidation is not the best way to deal with debt if you can’t get a low interest loan because of bad credit, or you will struggle to pay off what you owe within a low or zero interest period.

Let’s explore all the details of debt consolidation, and look at other options for dealing with debt, so that you can decide on the best course of action.

What is debt consolidation?

Debt consolidation is taking out a loan to pay off your existing debts. This will put all the money you owe in different places (with its varying rates of interest), into one simple monthly repayment.

Using a consolidation loan to pay off all your different debts at once, and then paying off the balance with one manageable, monthly payment can be really helpful with keeping track of your debt, and ensuring that you don’t miss any payments or accrue any late fees. If you know exactly what you’re paying off every month, you will be able to budget better and work to clear your existing debt faster.

Even better, you may be able to pay a lower rate of interest on a debt consolidation loan than the combined rate you’re paying on your existing debts. Some credit cards offer 0% balance transfer cards, meaning that you can put your debt from different cards onto one card, and pay it off at zero added interest. However, you should only consider this option if you’re sure you can afford to pay off your debts within the 0% interest period, as interest rates rise quickly after this.

Is debt consolidation the right choice for me?

Women thinking with note pad, pen and laptop

We’ve put together a list of pros and cons for debt consolidation, to help you work out if it is the right choice for you.


  • If you get a consolidation loan with lower interest rates, could be cheaper and faster to pay off your debts
  • You’ll only owe money to a single lender, helping you budget more easily
  • Helps you organise your debt into one place, reducing risk of missing or forgetting payments
  • Helps protect your credit score. Although your credit score may initially dip when you take out a debt consolidation loan, making regular payments on time (which should be easier if you’re paying less interest) will improve it.


  • Upfront costs. Some debt consolidation loans come with fees such as balance transfer fees and annual fees. You should always check these before deciding to take out a debt consolidation loan. has a consolidation loans checker that helps you compare consolidation loans without harming your credit score.
  • You may end up paying more interest over time, if you’re paying off less money per month through your consolidation loan.
  • They aren’t a cure for financial problems. Debt consolidation loans simply move the debt, and although this makes it easier to pay it off in a single payment, potentially with lower interest, this may not help if you struggle with problem debt, or have a tendency to keep using credit.
  • They won’t help if you’re struggling with debt. If you’re struggling to make your debt repayments, it is better to get help through a charity like StepChange, who can advise you on all the options you have for dealing with debt, including how to get some or all of it written off.
  • You will struggle to get low interest debt consolidation loans with poor credit, and, in this case, it may be better to seek other ways of dealing with your debt.

Debt consolidation makes sense if:

  • You will pay less interest through consolidating your debt than you would through continuing to pay it all off in different places.
  • You have a decent credit score, allowing you to access low interest consolidation loans.
  • You know that you will be able to afford the regular repayments
  • You won’t wipe out your savings through extra fees and charges for the loan, as you’ll end up losing the same amount, if not more, than you would paying off your previous debts.
  • You have a clear plan for using the consolidation loan to deal with your debt, and you don’t plan to take out any more credit on newly freed-up credit cards.
  • You will be able to pay off the loan fairly quickly, avoiding paying more interest in the long run if the loan drags out over years. However, you should always check your lender’s policy on paying off a loan early, to avoid early repayment fines.

Debt consolidation doesn’t make sense if:

  • You can’t get an interest rate on a loan that is lower than the combined interest you’re paying on current debt repayments. This would make the whole process pointless, as you may end up paying more in interest fees than you were previously, and possibly a fee for transferring balances.
  • You have poor credit. Although it is possible to get a debt consolidation loan with a bad credit history, this is likely to come with bigger interest rates, defeating the purpose of taking out a debt consolidation loan. If you have poor credit and you’re struggling to keep up with debt repayments, options like a Debt Relief Order (DRO) might be better.
  • You will struggle to make your debt repayments. If you are struggling financially and to make debt repayments, you aren’t the only one and there is help out there. However, debt consolidation is not be the best approach to dealing with debt, because you’ll end up accruing late fines, penalties and interest charges, the same as with any loan.
  • Using credit is a problem for you. Putting your credit card debt onto a consolidation loan frees up space on the credit cards for you to spend more, which can be a huge issue if you’re trying to stay out of debt. Charities like Christians Against Poverty and National Debtline can support you for free through issues with debt and budgeting.

Options for debt consolidation

Pile of credit cards

Simply put, there are four different types of debt consolidation. These are:

  • Using a 0% balance credit card
  • Using a 0% money transfer credit card
  • Taking out a personal loan
  • Taking out a home equity loan, where you put your home up as collateral

Using a 0% balance transfer credit card

If you have a lot of debt on credit cards, you can do what is called a balance transfer. This is where you move balances from one or more of your credit cards onto a card with a lower rate of interest. Some balance transfer cards have limited-time, 0% APR or low-interest offers for a limited amount of time. This can be a good way of paying off the amount you owe at little or no interest, just as long as you make your payments on time. If you miss payments, or fail to repay your debts in the 0 % APR period, you could end up racking up a lot of additional interest charges.

Some cards charge a balance transfer fee, which means you could end up paying more than you think. Make sure that you’re not paying more than is worth it to do a balance transfer. You should also ensure that the credit limit on the balance transfer card covers both your debt and the transfer fee, as you may not be able to consolidate all of your debt otherwise.

Always use a balance transfer calculator to find out how much you might save with a balance transfer. You can find one at

Use a 0% money transfer credit card

A money transfer credit card works similarly to a balance transfer credit card, except that it allows you to transfer money from your credit card to your bank account. This allows you to pay off a loan lender or bank, and owe money to your credit card provider instead. With low or 0% rates, you can then repay what you owe without paying any interest. As with balance transfer cards, you must make sure you repay what you owe within the 0% period, as if you exceed this, you are likely to be charged interest. You should also be mindful of money transfer fees, as providers will charge up to 4% of the balance you are transferring. Depending on how large your debt it, you could end up paying a significant amount that could cancel out the advantage of using a 0% interest card.

Personal Loans

Another option is to take out a personal loan to consolidate your debt (this is also called a ‘debt consolidation loan’). You’ll agree the amount with the finance company providing the loan, and work out the period of time over which you’ll repay the money and interest. Like with balance and money transfer cards, you may have to pay a fee for taking out the loan, which will be a percentage of the total amount you’re borrowing.

However, you should only ever take out a personal loan to consolidate debt if you are sure that you can meet the repayments (if you can’t, you are likely to face heavy financial penalties that push you even further into debt), and if the interest you pay on the loan is lower than the combined interest of your original debts.

Home equity loan

If you have poor credit and want to consolidate your debt, your lender may ask you to take out a secured loan, such as a home equity loan. A secured loan is when you put up a valuable asset as collateral against your loan, which means that if your lender is entitled to your home as security for the loan if you fail to repay it. If you know that you can make the repayments on time, a home equity loan might work to help you repay debts at a lower interest rate. However, if you know you’ll struggle to make repayments, you should consider other options such as an IVA, which will protect your valuable assets. Like all debt consolidation tactics, home equity loans only serve to shift your debt around, so it has to be financially worth it (for example, you know you’ll definitely pay a lower rate of interest on your debt) to take one out.

Things to watch out for

Before you take out a debt consolidation loan, you should:

  • Check the small print for any extra fees or charges before you sign anything.
  • Make sure you won’t be charged fees for paying off existing loans early as this could eliminate any savings you make.
  • Check that balance transfer fees don’t exceed the savings you’ll make
  • Avoid paying a fee for a company to arrange the loan on your behalf

Can you get a debt consolidation loan with bad credit?

You will find it difficult to get a debt consolidation loan with a poor credit history that actually makes it worth it to consolidate your debt. Remember that the whole point of debt consolidation is to try and get a better deal on interest.

One option is to look at online lenders who look at alternative data, beyond credit reports and scores, to determine whether you qualify for a personal loan and lower rate. However, you must be extremely careful to check the legitimacy of any company you borrow from. If you are in serious debt it is never a good idea to take out more debt to cope with it, if you cannot make your repayments. Options like debt management plans, Debt Relief Orders or IVAs may be a better option to help you freeze interest on debt, an get some of it written off.

Now that we’ve run through all the pros and cons of consolidating your debt, we hope you’re in a better position to decide the best option for you. Remember: debt consolidation can be a good tactic for dealing for debt, but only if you can afford the repayments. If you can’t afford debt repayments, always seek help from a debt advice charity or company, before taking out new loans.

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