Debt Consolidation: How to Combine Your Debts into One Payment

What is debt consolidation?

Debt consolidation means taking out a single new loan to pay off multiple existing debts. Instead of juggling several credit cards, store cards, or personal loans — each with its own interest rate and payment date — you combine debts into one payment each month.

The goal is simplicity and, in many cases, a lower overall interest rate. When you consolidate debt, you replace high-interest borrowing with a single loan that is easier to manage and often cheaper over time. It does not erase what you owe, but it can make repayment far more straightforward.

Debt consolidation is particularly popular with homeowners who can use the equity in their property to access better rates. In Wales, where average house prices have risen steadily, many people find they have enough equity to secure a competitive debt consolidation loan against their home.

How does debt consolidation work?

The process is straightforward. First, you add up everything you owe — credit cards, overdrafts, car finance, personal loans. Then you apply for a consolidation loan for that total amount. If approved, the lender either pays your creditors directly or releases the funds so you can clear the balances yourself.

From that point, you make a single monthly repayment to the new lender. The interest rate on a consolidation loan is often lower than what you were paying across your various debts, especially if you are replacing credit card debt at 20–30% APR.

Repayment terms typically range from 3 to 25 years depending on whether you choose a secured or unsecured product. Longer terms reduce your monthly outgoing but increase the total interest paid, so it is worth using a loan calculator to find the right balance between affordability and total cost.

Secured vs unsecured debt consolidation

An unsecured consolidation loan does not require collateral. You borrow based on your income and credit history. Rates tend to be higher — typically 6–15% APR — and maximum loan amounts are usually capped at around £25,000. They suit people with smaller debts and good credit scores.

A secured consolidation loan is backed by your property. Because the lender has security, interest rates are significantly lower — often between 4% and 8% — and you can borrow larger amounts over longer terms. This makes secured loans ideal for consolidating substantial debts, particularly credit card balances that have built up over time.

The crucial trade-off is risk. With a secured loan, your home is at risk if you fall behind on repayments. You should only choose this route if you are confident you can maintain the payments. For a full comparison, read our guide to secured loans.

How much could you save?

The savings depend on your current rates, the consolidation rate you qualify for, and the repayment term you choose. Here is a worked example to illustrate the potential difference.

Of course, extending the term means you are in debt for longer. If you can afford higher monthly payments on a shorter term, you will save even more on interest. Use our secured loan calculator to model different scenarios with your own figures.

Who is debt consolidation right for?

Consolidation works best for people who have multiple debts at high interest rates and are finding it difficult to keep track of payments. If you regularly miss due dates because you have too many creditors to manage, combining everything into one payment can relieve that pressure.

Homeowners are particularly well placed because they can access secured rates that are dramatically lower than credit card APRs. Even if your credit score has taken a hit from missed payments, secured lenders may still be willing to lend because your property provides security.

Consolidation may be less suitable if your debts are small and manageable, if you are close to paying them off already, or if you are likely to build up new debt on the credit lines you clear. It is a tool for restructuring — not a reason to borrow more. If you are struggling with debt and unsure of the best route, free advice is available from StepChange or Citizens Advice.

What debts can you consolidate?

Most forms of unsecured borrowing can be rolled into a consolidation loan. The most common debts people combine include credit card balances, store card debt, personal loans, overdrafts, catalogue accounts, and payday loans. You can also consolidate car finance in some cases, although this depends on the type of agreement.

Secured debts like your existing mortgage cannot usually be consolidated in the same way, although remortgaging to release equity is a related option. Council tax arrears and certain government debts may also be excluded by some lenders.

When you apply, the lender will want a clear picture of what you owe and to whom. Prepare a simple list of each debt with the outstanding balance, monthly payment, and interest rate. This will help your broker find the most suitable product and give you an accurate comparison of before and after costs.

Will it affect your credit score?

In the short term, applying for any new credit will leave a hard search on your file, which can lower your score by a few points. If you apply to several lenders directly, each search is recorded. Working with a broker is often better because they can search the market with a single application, limiting the impact.

In the medium to long term, consolidation often helps your credit score. Paying off credit cards reduces your credit utilisation ratio — one of the biggest factors in your score. And replacing multiple variable payments with a single consistent repayment builds a strong track record of on-time payments.

The biggest risk to your score comes from missing payments on the new loan. Make sure the monthly amount is affordable before you commit. It is also wise to close or reduce the limits on old credit cards once they are paid off, to remove the temptation of running up new balances.

How to consolidate your debts

Start by listing all your current debts and noting the balance, interest rate, and monthly payment for each. Add them up to find your total debt and total monthly outgoing. This gives you a clear baseline to compare against consolidation options.

Next, check whether a secured or unsecured loan is the better fit. If you own your home and have reasonable equity, a secured loan will almost always offer the lowest rate. If you rent or prefer not to use your property as security, an unsecured personal loan may work for smaller amounts.

You can apply through Loan.wales to compare options from across the market. We will review your situation, search for the best available rates, and explain exactly what the new loan will cost each month and in total. There is no obligation and no upfront fee.

Things to watch out for

Total cost over the term. A lower monthly payment is appealing, but stretching repayment over many years can mean you pay more interest in total. Always compare the total amount repayable, not just the monthly figure.

Early repayment charges. Some of your existing debts may have penalties for early settlement. Check the terms before you proceed — in most cases the savings from a lower rate still outweigh any exit fees, but it is worth confirming.

Borrowing more than you need. It can be tempting to add a little extra on top when consolidating, but this defeats the purpose. Stick to consolidating what you owe. If you need additional borrowing for a specific purpose, treat it as a separate decision.

Running up new debt. Once your credit cards are cleared, the available credit can feel like free money. Consider cancelling cards you do not need, or at least cutting the limits, to avoid falling back into the same pattern.

Frequently asked questions