The monthly payment is the wrong number
Most consolidations look attractive on the monthly figure. That is because the new term is longer than the debts being replaced. Stretching £12,000 of card balances from two years to seven can cut the payment in half and still cost more interest. The number that matters is the total you will repay, including fees, versus the total you would repay by leaving things as they are.
Worked example. £15,000 across cards at 22% APR, minimum payments, versus a five-year loan at 9% APR plus fees.
- Cards, paid at a planned £400/month: cleared in ~4 years, interest roughly £4,800
- Loan at 9% over 5 years: monthly ~£311, interest roughly £3,700 before fees
- Same loan stretched to 10 years: monthly ~£190, interest closer to £7,800
The five-year loan can be a saving. The ten-year loan is a smaller payment that costs more. If the only way the payment fits is the ten-year term, the honest conversation is about whether consolidation is the right tool at all.
Do not secure what was not secured — unless you mean to
Credit cards and unsecured personal loans put your credit file at risk, not the house. A secured consolidation loan reverses that. Miss the new payments and the lender has a charge on the property. For some households that is an acceptable, understood trade for a rate they could not get unsecured. For others it is how a card problem becomes a housing problem.
If the unsecured rate is already tolerable, keep the debts unsecured. If the unsecured rate is punitive or the amount is above what personal-loan lenders will do, the secured route is the one specialists actually use — and the risk has to be on the table before the form is filled in.
The habit that makes it fail
The common failure is not the rate. It is clearing the cards and then using them again, so the household ends up with the new loan and new card balances. Lenders cannot prevent that. Some will ask for the cards to be closed as a condition of the loan; even then, new cards can be opened later.
Consolidation only works as a reset. If the spending that created the balances is still happening, a cheaper rate just finances more of it. That is a conversation worth having before any application, not after completion.
Common questions
Is a debt consolidation loan a good idea?
Is a debt consolidation loan a good idea?
It is a good idea when it lowers the total cost of credit or makes an unmanageable set of payments manageable, and you stop using the cards you just cleared. It is a bad idea when the only win is a smaller monthly payment stretched over so many extra years that you pay more interest, or when the cleared cards are run back up.
Should I consolidate with a secured or unsecured loan?
Should I consolidate with a secured or unsecured loan?
Unsecured if the total is under about £25,000 and your credit will still price. Secured if you need more, need a longer term to keep the payment down, or adverse credit has made unsecured expensive. Secured puts the house behind debts that were not previously secured. That is the trade-off, and it should be said plainly.
Will consolidating improve my credit score?
Will consolidating improve my credit score?
A new account and a hard search dip the score in the short term. Over the following months, lower utilisation on the cleared cards and a clean payment record usually help. Rebuilding the card balances on top of the new loan does the opposite.
Is a 0% balance-transfer card better?
Is a 0% balance-transfer card better?
For credit-card-only debt you can clear inside the promotional period, often yes — even after the transfer fee. A loan is the better tool when the debt includes personal loans or car finance as well, or when you know you will not clear it before the 0% ends.
Can I consolidate debt with bad credit?
Can I consolidate debt with bad credit?
Yes. Specialist secured-loan lenders consider CCJs, defaults and missed payments because the property is security. Unsecured options exist at smaller amounts and higher rates. Soft-search first so you are not collecting declines.
What does it cost?
What does it cost?
Comparing is free. If you proceed with a secured loan, the adviser fee is £2,495 on completion, shown next to every rate and included in the total repayable. Unsecured pricing is set by the lender; any fees are disclosed before you apply.
Related
Worked examples, 0% cards vs loans, and the habits that make it fail.
Why a second charge sometimes beats refinancing the whole mortgage.
Specialist options when existing debts have already damaged the file.
Consolidate without securing the new borrowing on your home.
Important: Information on this page is for guidance only and does not constitute financial advice. Consolidating unsecured debts into a loan secured on your home puts that home at risk. Credit is subject to status and affordability. CleverCompare is an introducer appointed representative of Charles Frank Finance Limited, which is authorised and regulated by the Financial Conduct Authority.