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Should you consider debt consolidation?

Managing multiple debts can be a handful.

Different balances, repayment dates and lenders can cause confusion just to keep track of everything at once. 

For some people, this is where debt consolidation comes in.  

Whilst the idea of bringing everything together into one place may sound simple, it's worth understanding exactly what it involves and what it doesn't. 

This guide looks at debt consolidation in a clear, balanced way, helping you understand how it works, along with the potential benefits and things to consider. 

What is debt consolidation? 

Debt consolidation is the process of combining multiple debts into a single debt with a single repayment. 

People often use a new personal loan to pay off existing debts like credit cards, overdrafts or loans. 

This means instead of managing several payments, there is just one monthly repayment to make, which can make things simpler.  

It's important to remember that this doesn't reduce the amount owed, it just changes the way you pay it.  

Why is debt consolidation popular? 

With rising costs and the impact of inflation, you wouldn't be alone if you felt a squeeze on the bottom line. 

Data from debt charity, Step Change, revealed 163,916 people received full debt advice in 2025.  

In 2025, over 70% of V12 Personal Finance customers applied for a loan to consolidate existing debt, showing that it is one of the more common reasons people look at personal borrowing. 

Debt consolidation can mean one straightforward repayment and, in some cases, may reduce the interest paid overtime. It's important to remember it can also increase the paid interest overtime.  It all depends on the rate, term, fees and the debts being consolidated. 

For some people, bringing repayments into one place may also make borrowing feel easier to manage. However, it is still new credit, so it is important to understand the full cost and make sure the repayments are affordable. 

The potential benefits of debt consolidation 

Debt consolidation can offer some potential advantages, but only if the new borrowing is affordable and the overall cost makes sense for your circumstances. 

Simpler repayments: bringing several repayments into one place may make them easier to keep track of. 

Greater clarity: combining several payments into one can give you a clearer view of what you owe and when it needs to be repaid. 

Potential to reduce interest: if the new borrowing has a lower interest rate than your existing debts, it may reduce the amount paid in interest. However, a longer repayment term could still mean paying more overall. 

Predictable monthly costs: many consolidation loans have fixed monthly repayments, which can make budgeting easier if the repayment amount is affordable. 

Always remember the risks 

Debt consolidation isn't always the right fit for every situation, and there are important considerations to keep in mind. 

Restructuring your debt is not a quick fix. It may help in some circumstances, but it can also make things more expensive or harder to manage if the new agreement is not right for you. 

Here's what you should remember: 
•    It is new credit: you are borrowing again to pay off other debts, so check any fees, repayment terms and affordability before applying. 
•    A longer term could mean paying more overall: lower monthly repayments may feel more manageable, but you could pay more interest over the full term. 
•    Only borrow what you can afford: missed payments can affect your credit file and make borrowing more difficult in the future. 
•    Think about why the debt built up: if day-to-day costs are still difficult to cover, consolidation may not solve the underlying issue. 
•    Beware of unauthorised advice: always use FCA-authorised services; unauthorised debt advice may be misleading and may not be covered by the Financial Ombudsman if things go wrong. 
•    Know where to get support: if you are worried about debt or struggling to keep up with repayments, free debt advice services can help you understand your options.

Taking time to explore your options 

Understanding borrowing options shouldn't feel rushed. 

It's important to explore what might be available before making any decisions and understand all the details before committing to anything.  

With V12 Personal Finance, you can check your eligibility without any impact to your credit score. This can help you understand whether you may be eligible before you decide whether to apply. 

FIND OUT MORE ABOUT THE V12 APP 

 

Debt consolidation means combining multiple debts into one repayment agreement,[KG6.1][TH6.2] usually by taking out a new credit product to pay off existing balances. 

No, it doesn't reduce the total amount owed. It restructures debt into a single balance, often with a new repayment schedule.

In some cases, monthly repayments may be lower, particularly if the repayment term is extended or the interest rate is lower. However, a lower monthly repayment does not always mean the loan costs less overall.

Checking your eligibility with a soft credit check will not affect your credit score. If you go on to make a full application, this may involve a hard credit check, which can be visible on your credit file. Keeping up with repayments may support your credit profile over time, while missed payments can have a negative impact.

No, it isn't suitable in every situation. It depends on your financial circumstances, the terms of the new borrowing, the cost of your existing debts and whether the repayments are affordable.

People often consider debt consolidation to simplify multiple repayments, bring debts into one place, and improve visibility over what they owe.