Should I Use A Personal Loan To Consolidate My Debts?

If you have several debts, using a personal loan to consolidate what you owe into one manageable monthly payment could be a convenient way to reduce the amount of interest you’re paying and help clear your debt faster. 

We take a closer look to help you assess whether it’s the right choice for you.

How to consolidate debt with a personal loan

Combining multiple types of debt – such as credit card and store card balances, loans, overdrafts, and payday loans – into a single monthly payment can make it easier to manage your finances and potentially save you a decent sum of money too.

One way to do this is to use a personal loan. The amount borrowed through the loan can be used to pay off your existing debts, and you’ll then repay your new lender in monthly instalments, ideally at a lower rate of interest.

This means you’ll only have one payment to make each month, rather than several, and only one lender to deal with.

What are personal loans?

Personal loans typically let you borrow between £1,000 and £15,000, although you can borrow up to £25,000 with some lenders. You’ll usually be able to repay this amount over one to five years, with some loans lasting a little longer.

Personal loans are unsecured, which means they are not secured against an asset such as your home.

Secured loans, on the other hand, are secured against your home which means if you default, the lender has the legal right to repossess your home.

What are the pros and cons?

There are several advantages and disadvantages to using a personal loan to consolidate debt. It’s important to understand these before deciding whether it’s the right tactic for you.


  • You only make one payment each month to a single lender, making managing your finances more manageable and straightforward
  • You may be able to reduce the amount of interest you’re paying on your debt – rates are most competitive for loan amounts of over £7,500
  • Reducing the amount of interest will help you pay off your debts faster
  • Personal loan monthly payments are fixed, making it easier to budget
  • You choose how long you need to repay the loan, usually up to five years
  • Paying on time each month can help to improve your credit score.


  • Not all lenders will allow you to use a personal loan to consolidate debt, so check before you apply
  • The most competitive personal loan rates are only offered to those with good credit scores, so if yours isn’t up to scratch you may be offered a higher rate
  • Depending on the interest rate you are offered, monthly payments could end up being higher than they were before
  • Payments are not flexible so if you miss a payment, this can affect your credit rating
  • The longer the term of your loan, the more you will pay in interest
  • There may be arrangement fees to pay, as well as an early repayment charge if you want to repay your loan early.
  • You may have to meet an early payment charge on one or more of your existing debts if you clear them with a new personal loan.

What to consider before applying

If you want to use a personal loan to consolidate existing debts, it’s important to assess whether doing so will definitely save you money overall.  

To do this, first check whether you will have to pay any early repayment charges for clearing your original debts before the end of the term. If so, this may outweigh any savings you’d make by taking out a personal loan.

Next, consider exactly how much you need to borrow (add up the total cost of your current debt, including any early repayment charges) and assess whether you are likely to be able to borrow that amount.

You’ll also need to think about how long you need to repay the amount borrowed – remember that if you choose a longer loan term, your monthly repayments will be lower, but you’ll pay more in accumulated interest.

If it looks like you’ll end up paying more for a personal loan than if you kept your debt where it is, or if you don’t think you’ll be able to afford your new single monthly repayment, a personal loan is unlikely to be your best option.

Likewise, if you are fairly close to settling your existing debts, consolidating them is unlikely to make good financial sense.

However, if you’re happy to go ahead, it’s worth checking your credit score before you apply to give you an idea of how likely you are to be accepted for the best deals. Try using a fee-free service such as Experian, Clearscore, Credit Karma or MoneySavingExpert’s Credit Club.

What are the alternatives?

Although a personal loan can be a useful way to consolidate debts, there are a few other options you may want to consider.

Balance transfer credit card

If you have debt sitting on a number of credit cards or store cards, moving that debt across to a balance transfer card can be an easy way to manage it.

Should you choose a 0% balance transfer credit card, you won’t have to pay any interest on your debt for several months. This could save you a lot of money and help clear your debt more quickly.

Be aware, however, that most balance transfer cards come with a fee of around 3% of the amount you transfer, which will be added to your balance. And, if you don’t clear your balance within the 0% period, you’ll start paying interest.

Alternatively, some balance transfer credit cards come with a low annual percentage rate (APR) for the life of the debt, rather than 0% for a limited period. This means there’s no pressure to have paid off your debt within a certain timeframe – and some low APR balance transfer cards don’t charge transfer fees.

Just keep in mind the credit limit on your credit card may not be sufficient to consolidate all of your debt, and the best deals are usually only offered to those with good credit ratings.

Money transfer credit card

A money transfer credit card allows you to move funds directly from your credit card into your bank account. You can then use these funds to pay off your existing debt – providing the credit limit is high enough.

Should you choose a 0% money transfer credit card, you won’t need to pay any interest for a set time. However, like balance transfer cards, there is usually a transfer fee to pay (often around 4% of the sum involved) and once the 0% deal ends, interest will kick in.

Secured loan

A secured loan usually allows you to borrow a larger amount than a personal loan (often £25,000 or more) and you can often repay it over a much longer timeframe (up to 25 years). Interest rates can also be lower than for personal loans.

However, the big drawback is that secured loans are secured against your home – which means if you cannot keep up with your repayments, you risk losing your home. They should therefore only be considered if you’re confident you can make your payments each month.

This kind of secured loan is sometimes called a ‘second charge’ mortgage, and it is a separate loan on top of your main mortgage. It can be a useful option if you don’t want to remortgage (see below) because doing so would incur an early repayment charges on your existing mortgage.

Release equity from your home

Another option is to remortgage and release equity from your property – it’s usually better to do this if your existing mortgage deal is coming to an end, otherwise you may have to pay an early repayment charge.

Providing your property’s value – and therefore the amount of equity in your home – has increased, you could choose to take out a new, larger mortgage and use some of the equity to pay off your other debts.

However, bear in mind the size of your mortgage loan will increase so your monthly payments are also likely to go up, even if you secure a mortgage with a lower rate of interest.

What’s more, because you’ll be borrowing over a longer period of time compared to a personal loan or credit card, you’ll end up paying more in interest.

Also be aware that should house prices crash, the equity in your home could fall significantly, potentially leaving you in negative equity, where the size of your mortgage is larger than the value of your property.

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