How do debt consolidation loans work?

Debt consolidation works by moving all your borrowed money into one loan. You may do this to pay off the various other credit cards, overdrafts or loan arrangements you have and move your debt to one consolidated loan.

You will then make one payment to your loan provider instead of different lenders.

The pros and cons of debt consolidation loans

Pros

  • You will only have to make one monthly loan payment
  • Manage your debt more easily by reducing your monthly repayments
  • It can improve your credit rating by closing multiple loans and credit card accounts
  • Consolidating your debt with an unsecured loan could ease your financial burden

Cons

  • Your repayment period may be extended with one larger loan repayment
  • You may pay more interest over time than you would have if you paid off each debt individually

You could pay less interest by moving an existing credit card balance to a balance transfer credit card offering a longer introductory period on balance transfers. Always consider all the finance options available to you.

Should I get a loan to consolidate my debt?

Before you start a personal loan application, there are a few things you should consider:

  • Interest rates can be tiered depending on how much you borrow so once you work out the loan you will need, make sure to check the rate. Generally, interest rates vary for different amounts of borrowing, so you might consider borrowing a different amount to pay a lower rate
  • Most debt consolidation loans are unsecured, which means the provider of the loans cannot claim your home if you are unable to keep up with repayments. However, there are other actions the lender could take, and missing repayments will adversely affect your credit rating
  • If you apply for a secured loan, you are at risk of any unpaid debt being held against your property or other financial assets. Find out more about secured vs unsecured loans
  • For any existing debts you have, you should check if any repayment charges apply if you are in the position to pay off your loan early

If you’re unsure on the best loan option to consolidate debt, check out our guide to personal loans.

Loan calculator

If you choose to consolidate your debt, you can use our calculator to easily figure out whether a debt consolidation loan is the right option for you. 

  • 2.8% APR representative for Nectar members, when you borrow £7,500 - £25,000 for 37-60 months  
  • We’ll work out your possible interest rate, monthly payment amount and total cost in just a few clicks
  • Find out how likely you are to be accepted, and rate we might offer you, without affecting your credit score 
  • You could get your money in as little as 2 hours, or the next business day, if you’re accepted 
  • Our online application is quick and easy to complete, you can sign your agreement online, and upload any documents we might need

All quotations given are for illustrative purposes only.  

Use our loans calculator

Applying for a joint loan application? Please note, your application may take longer to process.

Note that credit is subject to status. And the rate you may be offered will depend on your personal circumstances, credit assessment procedures and other related factors.

Find the right option for you

If you’re looking for the best debt consolidation loan to apply for, we offer six different levels of borrowing. See our banded loan options for the total amount repayable, representative APR and monthly repayments.

Find out more

Helpful guides

Early repayments

See what your options are if you wish to repay your loan early.

Can I afford a loan?

If you’re unsure if you can afford the repayments of a loan, our guide can help.

Credit reports

Find out how to check your credit report and how it may affect your application.

Switching loans

See our detailed guide of things to consider before switching loans.

Better budgeting

Read our handy tips to help you cut costs and start saving for the future.

All guides

Everything you need to know from planning your financial future to switching loans.

Got a question?

We’ve answered our customers’ most commonly asked questions about loans. You can also get in touch if you need to talk to our friendly team.