CoverMapWhat is debt consolidation?
MoneyHelper describes debt consolidation as putting all the money you owe into one “consolidation” loan. You borrow enough to clear your existing debts, then repay a single lender. StepChange puts it simply: it “joins all your debts together”.
ClearScore gives a typical example. Someone with three credit cards (£2,000, £1,500 and £3,000) and a £1,000 overdraft takes one £7,500 loan to clear all four. They then have one monthly payment and one interest rate.
Credit consolidation doesn’t make the debt smaller. MoneyHelper says it only makes sense if it clears all the debts, reduces the total you repay, lowers your interest, isn’t wiped out by fees, and leaves payments you can afford.
It is a common question. The Money Charity’s September 2026 report, based on July 2026 data, puts average unsecured consumer credit at £8,867 per household and £4,560 per adult. Credit card debt alone averaged £2,832 per household.
Debt consolidation options compared
There are several ways of consolidating debt. They differ in cost, risk and who can get them.
| Option | How it works | Typical cost (checked October 2026) | Main risk |
|---|---|---|---|
| 0% balance transfer card | Moves card balances onto one new card | 0% for up to 38 months; one-off fee of 2.9%–3.49% on top deals | Full rate applies to anything left when the 0% ends |
| 0% money transfer card | Pays cash into your bank account to clear other debts | 0% for 12–14 months; fee of 3.99%–4% | Short 0% period, higher fee |
| Unsecured consolidation loan | Fixed-rate personal loan used to repay debts | From 5.9% representative APR on £7,500–£25,000 | A longer term can mean more interest overall |
| Secured loan or remortgage | Borrowing secured on your home | Varies by lender and deal | You could lose your home if you can’t keep up |
| Debt management plan (DMP) | One payment shared between creditors | Free from charities such as StepChange | Credit score can fall; not legally binding |
| Individual voluntary arrangement (IVA) | Formal, legally binding deal with creditors | Insolvency practitioner fees, which Citizens Advice calls high | Usually lasts five to six years |
Source: MSE balance transfer, money transfer and loan best-buy tables (October 2026); MoneyHelper; StepChange; Citizens Advice.
Balance transfer cards
A balance transfer moves existing card debt to a new card with a 0% period. In MSE’s tables, checked October 2026, TSB offers up to 38 months at 0% with a 3.49% fee. HSBC, Virgin Money and Tesco Bank offer a definite 36 months. Fees on these deals run from 2.9% to 3.49%.
The rules matter. You usually need to transfer within 60–90 days to get the deal. You can’t move debt between cards from the same banking group. Miss a minimum payment and some providers withdraw the 0% rate. MoneyHelper notes you generally need a good credit score. Our guide to balance transfer vs 0% purchase cards covers this in more detail.
Money transfer cards
A money transfer card pays cash straight into your bank account, which you can use to clear an overdraft or loan. MSE lists Tesco Bank at 0% for 14 months with a 3.99% fee, and Virgin Money at 12 months with a 4% fee (September 2026). The 0% periods are much shorter than on balance transfers.
Debt consolidation loans
An unsecured debt consolidation loan is a standard personal loan used to repay other debts, including overdrafts as well as cards. ClearScore says unsecured loans typically range from £1,000 to £25,000, depending on your credit score and income. You get a fixed monthly payment and a set end date.
The trade-off is that a lower rate doesn’t guarantee a lower total cost. Experian notes the “total cost could be higher despite lower rates”. StepChange adds that the interest “could be higher than what you are paying now”, especially with poor credit, and that repayments are not flexible if your income drops.
Secured loans and remortgaging
Homeowner loans and remortgaging turn unsecured debt into debt secured on your home. MoneyHelper warns that if you miss repayments on these “homeowner loans”, “you could lose your home”. StepChange lists the risks of remortgaging to pay off debt as longer repayment terms, securing the debt on your home and more interest to repay in total.
MSE’s January 2025 example shows why the term matters. A £100,000 mortgage at 5% over 25 years plus £10,000 of card debt at 18% repaid over four years costs £80,000 in interest. Fold the card debt into a £110,000 mortgage at 5% and keep paying only the old mortgage amount, and it takes 31 years and costs £106,500. Keep paying the old combined amount instead, and it takes 14.5 years and costs £45,000.
Debt management plans and IVAs
A DMP is not a loan. MoneyHelper says it lets you pay off debts “at a rate you can afford”. It covers non-priority debts such as credit cards, overdrafts and personal loans, not mortgages, rent, Council Tax or secured loans. StepChange says creditors “might agree to freeze interest and charges”, but your credit score could go down. StepChange offers DMPs for free; most debt management companies charge fees.
An IVA is a formal, legally binding agreement with creditors, set up by an insolvency practitioner. Citizens Advice says it usually lasts five to six years and that, because fees are high, it might not suit debts under £10,000.
Debt consolidation rates: October 2026 benchmarks
To judge whether a deal saves money, compare it with what you pay now. These figures give a sense of the market.
| Benchmark | Rate | Source and date |
|---|---|---|
| Average rate on interest-charging credit cards | 21.55% | Bank of England, August 2026 |
| Average rate on new personal loans | 9.96% | Bank of England, August 2026 |
| Lowest representative APR, £7,500–£25,000 loan | 5.9% (M&S Bank) | MSE, updated 1 October 2026 |
| Lowest representative APR, £1,000–£2,999 loan | 9.9% | MSE, updated 1 October 2026 |
Source: Bank of England Money and Credit, August 2026; MSE cheap personal loans table.
Small loans cost more, so a loan to consolidate a modest balance is unlikely to get the headline rate. The rate you are offered can also be higher than the advertised one. See credit card APR explained for how card rates work, and our personal loans guide for full loan tables.
How to consolidate credit card debt, step by step
- List every debt. Note each balance, interest rate, monthly payment and any early repayment charge.
- Work out the total cost now. Find out how long each debt will take to clear at your current payments and what interest you will pay.
- Check eligibility before applying. Many lenders and card providers offer eligibility checkers.
- Compare total cost, not just rate. Include balance transfer or money transfer fees and the full term of any loan.
- Apply once. A full application is a hard search, recorded on your credit report.
- Clear the old debts promptly. Balance transfer deals usually need moving within 60–90 days. With a loan, pay off each card as soon as the money arrives.
- Set up a fixed payment and stop using the old cards. On a 0% card, plan to clear the balance before the deal ends.
How consolidation affects your credit score
Experian says a hard search is recorded when you apply for a loan and most stay on your report for 12 months. ClearScore calls the effect “a small temporary dip”. After that, paying off cards can help, because it lowers your credit utilisation. Experian says using under 30% of your available credit is beneficial.
Closing the cleared cards can work the other way. Experian notes it reduces your available credit and lowers the average age of your accounts. ClearScore says it’s generally better to keep accounts open with zero balances. More in how credit scores work in the UK.
When debt consolidation doesn’t help
- The term is much longer. StepChange: “The longer you have the consolidation loan, the more interest you take on.”
- The old cards fill up again. StepChange says many people take on new debts while they have the loan, and it speaks to “lots of people who end up deeper in debt” after consolidating.
- Fees cancel the saving. MoneyHelper says savings shouldn’t be wiped out by arrangement or early repayment fees.
- You can’t afford the payments. MoneyHelper says consolidation only makes sense if you can afford the payments, and calls consolidation loans “another form of lending”. Free debt advice can explain other options, such as a DMP.
- The offer looks too good to be true. MoneyHelper warns against “unrealistic promises” of “drastically lower” payments and firms that charge upfront or consultation fees.
Free debt advice
StepChange recommends getting debt advice to look at all your options before taking out a consolidation loan. Free help is available from charities such as StepChange and from Citizens Advice. MoneyHelper’s Debt advice locator finds free, confidential advice online, by phone or locally.
Be wary of fee-charging firms. In September 2026 the FCA warned about people being “steered towards a fee-charging debt solution” without free options being explained. Its red flags include repeated contact after an online enquiry and being coached to change the income or outgoings you give. As the FCA puts it, “Free debt advice is available to everyone.”
Frequently Asked Questions
What is debt consolidation?
It means combining several debts into one, usually with a 0% balance transfer card or a loan, so you make one payment at one rate. It doesn’t reduce what you owe, and it only saves money if the total cost is lower than your current debts.
Is a balance transfer or a consolidation loan cheaper?
It depends on how fast you can repay. A balance transfer can be 0% for up to 38 months (checked October 2026) for a one-off fee, but any balance left afterwards is charged at the card’s full rate. A loan gives a fixed rate and end date. See balance transfer vs 0% purchase cards.
What are debt consolidation loan interest rates in 2026?
The lowest representative APR in MSE’s table was 5.9% for £7,500–£25,000 (checked October 2026). The Bank of England’s average on new personal loans was 9.96% in August 2026. The rate you are offered may be higher than the advertised one.
Will consolidating my debts hurt my credit score?
Applying usually means a hard search, which ClearScore describes as a small temporary dip. Paying off cards can then help by lowering your credit utilisation. Closing old cards can reduce available credit and the average age of your accounts.
Is it a good idea to use my home to consolidate debt?
Secured loans and remortgaging can be cheaper, but MoneyHelper warns you could lose your home if you miss repayments. StepChange says remortgaging can mean longer terms and more interest in total.
Do I have to pay for a debt management plan?
No. StepChange offers DMPs for free, while most debt management companies charge fees. The FCA says free debt advice is available to everyone.
Sources
- MoneyHelper – Debt consolidation loans
- MoneyHelper – What is a Debt Management Plan?
- StepChange – Debt consolidation loans
- StepChange – Debt consolidation loan or debt management?
- Experian – Does debt consolidation affect your credit?
- ClearScore – What are debt consolidation loans? (21 Aug 2026)
- StepChange – Mortgages and remortgaging
- Citizens Advice – Check what an IVA is
- FCA – Debt advice warning: spot the red flags (22 Sep 2026)
- The Money Charity – Money Statistics, September 2026
- Bank of England – Money and Credit, August 2026 (29 Sep 2026)
- MoneySavingExpert – Balance transfer credit cards
- MoneySavingExpert – Money transfer cards (Sep 2026)
- MoneySavingExpert – Cheap personal loans (1 Oct 2026)
- MoneySavingExpert – Moving debts to your mortgage (Jan 2025)