What does debt consolidation mean?

Debt consolidation means taking out one new loan to pay off several existing debts. You then make a single monthly payment.

The debts do not vanish. You still owe the same money, plus any fees, but to one lender. That can make life simpler, but it can also cost more in the long run if the new loan lasts longer than the old debts would have.

Borrowing in this way is common.

The FCA’s Financial Lives survey found that 84% of UK adults, around 45.7 million people, held at least one credit or loan product in May 2024. This guide explains what debt consolidation means, how it works and what to weigh up first. It also covers the options for homeowners, who can use a remortgage or a second charge loan.

Debt consolidation key figures at a glance

These figures show how common borrowing is, and why it pays to take care before you secure debt against your home.

What is debt consolidation?

Debt consolidation is when you take out one new loan, or mortgage, and use it to pay off several debts you already have. Put simply, it is a loan to pay off debts such as credit cards, store cards, overdrafts and personal loans.

Your total debt stays the same. What changes is who you owe and how you repay.

Lenders sell loans labelled as debt consolidation loans, but you can also use a standard personal loan for the same job. Homeowners can use a mortgage or second charge loan instead. Our debt consolidation guide gives more background.

Debt consolidation is not the same as a debt management plan. Consolidation means taking on new credit, while a plan means agreeing smaller payments with the people you owe and borrowing nothing new. We cover this difference further down.

How does debt consolidation work?

Here is how debt consolidation works, step by step.

1. Work out what you owe. Add up every debt you want to clear. Ask each lender for an early settlement figure, which is the exact amount needed to close the account. Fixed-term loans can charge a fee for early repayment.
2. Choose how to borrow. Options include a personal loan, a 0% balance transfer card, a second charge loan or a remortgage. We compare these below.
3. Apply. The lender checks your credit file, your income and what you can afford. A full application leaves a hard search on your credit report.
4. Pay off the old debts. When the money arrives, clear the debts in full straight away. That stops you paying interest twice.
5. Repay the new loan. Make every payment on time. Resist the urge to run up the cleared cards again.

If a lower monthly bill is your aim, a longer repayment term delivers it. Each payment shrinks, but the extra years of interest is likely to raise the total cost.

Which debts can you consolidate?

You can consolidate most unsecured debts, which are debts that are not tied to your home or another asset.

Credit cards and store cards

Credit card debt is a common one to consolidate, because every card has its own interest rate and payment date. Borrowing on cards is also growing fast. The Bank of England reported annual growth of 13.3% in credit card borrowing in August 2026, against 9.6% for all consumer credit. Add any store cards to the same list, as they charge interest of their own.

Overdrafts

An bank overdraft is repayable on demand, so clearing it with a fixed-term loan gives you a set end date. Check what your bank charges before you decide, as costs vary from bank to bank.

Personal loans

If you hold more than one personal loan, one larger loan can cut the number of payments. Check for early repayment charges first. Rolling a cheap loan into a dearer one can raise your costs, so carefully compare the rate on each loan with the new one.

Payday and other high-cost loans

Payday loans are for small sums over short periods, so they are not normally part of a consolidation. If you hold one, though, clearing it can help you move away from high-cost credit. Our guide on whether a payday loan affects getting a mortgage explains how lenders view them.

What types of debt consolidation loan are there?

There are two main kinds of loan, unsecured and secured. A 0% balance transfer card is a third route for card debt.

Unsecured loans

An ‘unsecured’ loan is not linked to your property or any other asset. The lender relies on your credit record and income, so your credit history matters more. At the time of writing, MoneyHelper’s guide to borrowing options shows typical personal loan limits of £1,000 to £50,000. It adds that loans up to £50,000 can often be repaid over up to five years.

Secured loans

A ‘secured’ loan uses your home as security. It is usually a second charge loan or a remortgage. If you miss repayments on what are often called homeowner loans, you could lose your home.

A second charge loan leaves your main mortgage in place. The FCA’s final rules for second charge mortgages largely came into effect on 21 March 2016, so this type of lending is regulated by the FCA.

Secured loans can run for 10 to 25 years. That lowers the monthly payment but means you pay interest for longer. Because the property backs the loan, lenders may be more flexible about a poor credit score.

Is debt consolidation a good idea?

It depends on what the new borrowing costs and whether you can stick to your repayment plan. Compare the total amount you will repay, not just the monthly payment.

Possible benefits

• One payment on one date makes budgeting easier.
• You may pay less interest if you qualify for a lower rate than your current debts.
• A longer term can cut the monthly payment and free up cash each month.
• A fixed term gives you a clear date when the debt will be gone.

Possible drawbacks

• StepChange says consolidation loans last longer, so they often end up costing more in total interest.
• Arrangement fees and early repayment charges can eat into any saving.
• A secured loan puts your home at risk.
• StepChange says many people take on new debt while repaying the loan, and end up paying more than one company again.
• Consolidation does not fix the reason you built up debt.

When a consolidation loan can help

A consolidation loan may help when it clears all your payments, lowers the total you pay and cuts the interest charged. The saving has to be bigger than the fees. You also need to afford the payments for the whole term, and it helps to treat the change as a chance to cut your spending.

Can you consolidate debt into your mortgage?

Yes. You can remortgage to raise extra cash and use it to clear debts.

Remortgaging is routine: net approvals for remortgaging with a different lender stood at 34,000 in August 2026, according to the Bank of England. Our guide on whether you can remortgage to pay off debt covers this in more detail.

You apply to a new lender for a larger mortgage than you have now. The extra must cover the debts you want to clear. The lender checks your income, your credit record and the value of your home.

Check the terms of your current deal first. If you would pay an early repayment charge to leave it, a second charge loan may cost less because it leaves your main mortgage alone.

Mortgages run for longer than personal loans. The consolidated debt will probably cost you more in interest as a result. Read why debt consolidation mortgages cost more for the detail. Our page on capital raising to consolidate debt covers related options.

A worked example: splitting the loan

Say you have a £450,000 mortgage and £40,000 owed across cards and loans. You want to clear the lot.

• Option 1: remortgage for £490,000 over 25 years.
• Option 2: remortgage for £490,000 set up as two parts. Part one is £450,000 over 25 years. Part two is £40,000 over 10 years.

Before interest, £40,000 over 25 years comes to about £133 a month. Over 10 years it comes to about £333 a month. The 10-year part costs more each month, but the debt clears sooner. You pay interest on it for fewer years.

The catch is affordability. Before interest, the 10-year part costs about £200 a month more than the 25-year version, and that gap may be the pressure that sent you looking at consolidation. If it is too tight, one longer term on the whole sum will feel easier today but keeps that £40,000 on your mortgage for 15 more years.

Not every lender offers split loans.

Ask your mortgage broker whether it is possible, and to compare the total interest on each version against your income. Our debt consolidation remortgage page explains the process.

The risks of securing debt on your home

Your home may be repossessed if you do not keep up repayments on your mortgage.

Think carefully before securing other debts against your home.

The lender takes a legal charge over your property. If you fall into arrears, the lender can repossess your home and sell it to clear the debt. UK Finance reported 1,150 homeowner properties taken into possession in the second quarter of 2026, and 0.89% of homeowner mortgages in arrears of 2.5% or more. Those are small shares of all homeowner mortgages. Before you sign, work out what you would do if your income dropped.

Adding debt to your mortgage also raises the amount you owe against your home and cuts your equity. Consolidating debt may reduce your outgoings now, but you may pay more interest over your mortgage term.

How does debt consolidation affect your credit score?

A full application leaves a hard search on your credit report, and Experian says most hard searches stay there for 12 months. Eligibility checkers that use a soft search are not visible to lenders and do not affect your score.

Your score can dip for a short time after you apply. StepChange says that making payments on time and in full can help to raise your score over time. Missed payments show on your credit file and affect your score.

Check your credit report before you apply, so you can correct any mistakes and see where you stand. A low score can mean a higher rate of interest, or no offer at all.

Can you consolidate debt with bad credit?

Yes, but expect a higher cost and fewer lenders. StepChange says consolidation loans exist for people with poor credit, but you will likely pay higher interest and may miss the best deals.

Secured loans can be easier to get because the lender has your home as security, but you could lose the property if you stop paying. Our guide to bad credit explains how lenders treat a weak record.

Be careful with firms that promise too much. Avoid products that promise to repair your credit score instantly or make you debt free overnight, and providers that charge upfront or consultation fees.

What are the alternatives to debt consolidation?

Consolidation is one option, and it is worth comparing the alternatives.

These include:

• A debt management plan. You agree affordable payments with the people you owe, with no new borrowing. StepChange says creditors may also agree to freeze interest and charges.
• A formal debt solution. Examples include an individual voluntary arrangement, or the Debt Arrangement Scheme in Scotland.
• A 0% balance transfer card. This can work for card debt if you clear it within the interest-free period.
• Free debt advice. MoneyHelper’s debt advice locator helps you find a free, confidential adviser.

StepChange says there is no government-backed debt consolidation scheme and that any firm claiming one exists is misleading you.

What to check before you consolidate debt

Answer these six questions before you sign an agreement.

1. Can you afford the payments? You must still cover food, bills and other essentials each month.
2. Does the loan cover everything? Include fees and any early repayment charges in the total you need to borrow.
3. What does it cost overall? Compare the APR. For secured loans, compare the APRC too, because MoneyHelper says it includes extra costs such as an arrangement fee.
4. What will you pay to settle each debt? Citizens Advice says you can write to a lender and ask for an early settlement figure, which is the total needed to clear the loan in full.
5. What is your credit record like? Check it first, so you know which deals you can apply for.
6. How will you avoid new debt? StepChange suggests cancelling old credit agreements in writing, so you are not tempted to borrow again.

Speak to a mortgage broker about your options

Debt consolidation changes how much you pay and for how long. Weigh up the total cost, the risk to your home and the alternatives before you commit.

If you own your home, a remortgage or second charge loan may be worth a look alongside the other options above. Respect Mortgages can introduce you to an independent, whole-of-market mortgage broker who can look at what suits your situation. Contact a mortgage broker to get started.