With the cost of living rising and interest rates still high, many people in the UK are finding themselves with growing credit card and personal loan debt. If you’re juggling multiple repayments each month, a debt consolidation loan could offer a simpler, more affordable way to regain control of your finances.
In this guide, we break down what a debt consolidation loan in the UK is, how it works, and whether it might be the right solution for you. You’ll also learn about the different types of loans available, who qualifies, and how much you could potentially save.
If you want to learn about other options for consolidating your credit cards, read about it here.
What is a Debt Consolidation Loan?
A debt consolidation loan is a type of personal loan used to pay off multiple debts - typically credit cards, store cards, overdrafts or other loans. Instead of managing several repayments, you make one fixed monthly payment to a single lender.
This type of loan can help you:
- Lower your overall interest costs
- Simplify your finances
- Pay off your debt faster
In short, it’s a way to streamline your debt - and possibly reduce it, without taking out more credit than you need.
How does it work?
Here’s how a consolidation loan works in practice:
- You apply for a loan that covers the total amount of your existing debts.
- If approved, you use the loan funds to pay off all other lenders.
- You then repay the consolidation loan in monthly instalments over a fixed term (e.g. 3–5 years).
The key benefit? You move from managing multiple interest rates and due dates to just one predictable monthly payment - often at a lower rate.
Types of Debt Consolidation Loans
Secured vs Unsecured Loans
- Unsecured consolidation loans are not backed by collateral. Approval is based on your credit score and income.
Secured consolidation loans use your home or another asset as security. These may offer lower interest rates but come with higher risk - if you can’t repay, you could lose your asset.
Fixed vs Variable Interest Rates
- Fixed-rate loans mean your monthly repayments stay the same throughout the term.
Variable-rate loans can go up or down depending on market interest rates. This can save you money, or cost you more if rates rise.
For most borrowers, a fixed-rate unsecured loan is the most straightforward option.
Who is eligible?
Your eligibility for a debt consolidation loan in the UK depends on several factors:
- Credit history – Good credit gives you access to better rates
- Income and affordability – Lenders need to see that you can manage the repayments
- Existing debt levels – If your debt is very high, you may not qualify for an unsecured loan
You can check your eligibility with most lenders using a soft search tool, which won’t affect your credit score.
Pros and Cons of Debt Consolidation Loans
✅ Pros:
- One monthly payment instead of many
- Potentially lower overall interest
- Clear repayment plan with a fixed end date
- Can help improve your credit score if used responsibly
❌ Cons:
- May be hard to qualify with poor credit
- Fees or early repayment charges may apply
- Doesn’t address the root cause of debt
- Risk of falling back into debt if spending habits don’t change
Example: How a Debt Consolidation Loan saves you money
Let’s say you have:
- £6,000 in credit card debt at 24% APR
- Monthly payments: £180 (mostly interest)
You take out a £6,000 consolidation loan at 8% APR over 3 years.
- New monthly payment: £188
- Total interest paid: £760 (vs. over £2,000 on your credit cards)
- Savings: £1,240
That’s how a well-structured consolidation loan can reduce both your monthly stress and your long-term costs.
Alternatives to Consider
Before applying, it’s worth looking at other debt solutions:
- Balance transfer credit cards – Great for short-term credit card debt (if you have good credit)
- Debt management plans – Informal agreements to repay debt at a reduced rate
- Individual Voluntary Arrangements (IVAs) – Formal solutions for serious debt, with legal protection
Each option has pros and cons, so consider what fits your financial situation best.
Final Thoughts
A debt consolidation loan in the UK can be a smart way to simplify your finances, reduce your interest payments, and take the first step toward becoming debt-free. But it’s not a one-size-fits-all solution - and the key is finding the right loan with the right terms for your needs.
✅ Use our free calculator to see how much you could save with Incredible - no credit check required.
