What debt consolidation actually does
Consolidation replaces several debts with a single one — ideally at a lower interest rate and with one monthly payment. It can make repayment simpler and cheaper, but only if the new deal genuinely costs less overall and you don't run the old credit straight back up. The best option depends on your total debt, credit profile and whether you're a homeowner.
1. Unsecured debt consolidation loan
A personal loan that pays off your existing debts, leaving one fixed monthly payment. Best for borrowers with reasonable credit and moderate debts (typically £5,000–£25,000) who want certainty. Pros: fixed term and rate, no home at risk. Cons: rate depends on your credit; larger sums may need security.
2. Secured (homeowner) consolidation loan
Secured against your property, these allow larger sums and longer terms at lower rates than unsecured loans — but your home is at risk if you don't pay, and stretching debt over a long term can cost more interest overall. Best for homeowners with larger debts who can't get an unsecured loan big enough. See our best secured loans guide.
3. 0% balance transfer credit card
If your debt is mostly on credit cards, moving it to a 0% balance-transfer card can pause interest for 18–30 months. Best for disciplined borrowers who can clear the balance within the 0% window. Pros: potentially interest-free. Cons: a transfer fee, and rates jump sharply once the deal ends.
4. Debt Management Plan (DMP)
An informal arrangement (often via a free charity) where you make one reduced monthly payment that's distributed to creditors, who may freeze interest. Best for those struggling to meet minimum payments. Free through StepChange — never pay a fee-charging firm for what charities do free.
5. IVA or formal insolvency
For serious, unmanageable debt, an Individual Voluntary Arrangement (IVA) or other formal solution may write off part of what you owe. These have major credit consequences and should only be entered with free, regulated advice. Best as a last resort for large debts you cannot realistically repay.
How to choose the best option
- Manageable debt, decent credit: consolidation loan or 0% balance transfer
- Large debt, homeowner: secured consolidation loan (weigh the risk)
- Struggling with minimums: a DMP via a free charity
- Unmanageable debt: free insolvency advice before any IVA
Always speak to a free debt adviser — StepChange, Citizens Advice or MoneyHelper — before taking on new credit.
How to find the best consolidation route
If a consolidation loan is right for you, a whole-of-market broker can compare unsecured and secured options to find the lowest true cost for your circumstances. Find a debt consolidation specialist through Nesto — free, no obligation.
Frequently asked questions
Does debt consolidation hurt your credit score?
A new loan application causes a small temporary dip, but consolidating and paying reliably usually improves your score over time. Missing payments harms it.
Is a secured or unsecured consolidation loan better?
Unsecured keeps your home safe; secured allows larger sums at lower rates but puts your property at risk. The right choice depends on your debt size and credit.
Can I consolidate debt with bad credit?
Yes, though rates are higher. Specialist lenders and secured options exist — but check a DMP or free advice first if you're struggling.
Should I pay a company to set up a DMP?
No — charities like StepChange and Citizens Advice set up DMPs for free. Avoid fee-charging firms offering the same thing.
Will consolidation reduce what I owe?
Usually no — it restructures debt at (ideally) lower interest. Only formal solutions like IVAs or debt relief orders can write off part of the balance.