Finance glossary
Debt Consolidation Loan
Also known as: Consolidation loan
In simple terms
A debt consolidation loan is one new loan used to pay off several existing debts, so you are left with a single monthly payment to one lender instead of juggling many.
On this page
What does debt consolidation loan mean?
A debt consolidation loan rolls several existing debts — such as credit cards, overdrafts and other loans — into one new loan. You use the money to clear the old balances, then repay the single new loan over an agreed term.
The aim is usually to simplify your finances and, ideally, reduce the overall interest rate or the total monthly outgoing.
How a debt consolidation loan works
You borrow enough to pay off your existing debts and settle them all at once. From then on you make one monthly repayment on the consolidation loan, at a fixed rate over a fixed term if it is a standard personal loan.
Consolidation loans can be unsecured or secured against your home. A secured loan may offer a lower rate but puts your property at risk and often runs over a longer term.
How could this affect me?
Consolidation can make debts easier to manage and cheaper if you secure a lower rate and do not extend the term too far. But stretching debt over a longer period can mean paying more interest overall, even at a lower rate.
It only helps if you avoid running up new debt on the cleared cards. If money is tight, free debt advice may point to options — like a debt management plan — that do not involve more borrowing.
Things to watch out for
- A longer term at a lower rate can still cost more in total interest.
- Securing the loan against your home puts your property at risk.
- It only works if you stop using the cleared credit cards and overdrafts.
- If you are already struggling, more borrowing may not be the answer — get free advice.
Know your rights
- Consolidation loans are regulated consumer credit, so you get pre-contract information and normally a 14-day right to withdraw.
- You can usually repay early and pay interest only up to settlement, though an early repayment charge may apply.
- You can get free, independent debt advice from services such as MoneyHelper, Citizens Advice, StepChange and National Debtline.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, Should I consolidate my debts? (opens in a new tab). Accessed 22 Aug 2026.