Consolidating credit card debt

Keeping track of debt can be difficult when you have credit cards, loans and overdrafts spread out across different accounts. If you are looking for ways to manage your credit card debt, debt consolidation can be a convenient method of managing several debts at once.

What is debt consolidation?

Debt consolidation combines all your existing debts into one monthly payment, which can make it easier to manage your expenses. Use debt consolidation correctly and you can reduce your interest payments too. This can help you to pay off the outstanding debt balance in less time.

This guide explains the many different methods that you can use to consolidate your debts so that you can focus on paying it off.

Pros and cons of debt consolidation

There are advantages and disadvantages of using debt consolidation. Consider both pros and cons before you decide whether consolidation is the best way for you to manage your credit card debt.


Easier to manage

One major advantage of debt consolidation is that you only have to make one repayment each month, rather than many. This can simplify the management of your finances and reduce the likelihood of forgetting a repayment. You can also improve your credit score if you make consistent monthly repayments on time.  

Fewer monthly payments

Rather than having lots of monthly repayments on each credit card or loan, you only have one repayment to make each month. You may end up with smaller repayments each month, which can free up money to pay down the remaining balance. The amount you pay depends on the interest rate on your debt consolidation.

Lower interest costs

Debt can be costly, especially if you are paying high interest rates on your existing debt. You can reduce the cost of interest and save money by using a 0% balance transfer or a low interest rate credit card to consolidate your debt.


Expensive transfer fees 

Depending on your circumstances, any savings that you make by consolidating your debt may be cancelled out by the fees you pay to transfer your existing debt into one place. Before you decide to consolidate your debt, check the cost of the fees you will pay and make sure that you will save money overall.

Repayment can take longer

If you are consolidating large amounts of debt and choose to make minimum repayments, it may take a longer time to repay the balance in full. You can, however, increase the speed of the loan repayment by paying more than the minimum amount required.

May cost more in total

There is no guarantee that you will be offered a lower interest rate on the debt consolidation option that you choose than the current rates on your existing debt. Particularly if you have low interest rate credit cards or loans, you may find that a consolidation option is more costly.

Remember that with all forms of borrowing, making monthly on-time repayments can help improve your credit score. If you miss a monthly payment for a debt consolidation card or loan, your credit score can be negatively affected. 

Using a balance transfer to consolidate debt

A balance transfer can be a simple method of consolidating debt and reducing the interest rate that you pay on the debt that you have. Balance transfers allow you to move existing debt from one credit card to another, usually moving the debt from a high-interest rate card to a lower interest rate. 

You can look for a credit card with a 0% interest rate and use a balance transfer to move existing debt to the new card. Moving your outstanding balance to a card can allow you to pay more each month towards reducing the debt, instead of having to make expensive interest payments.

The best 0% balance transfer deals may only be available to people with a strong credit history, and the 0% interest-free period will be for a set period of time. If your credit history is less than perfect, or you need a longer period of time to pay off your total debt, look for a balance transfer card with a low interest rate. You will pay interest on the card balance, but the lower rate will not expire after a promotional period. This can result in the total amount of interest that you pay decreasing significantly. 

Be aware that when you use a balance transfer card to consolidate existing debts, you could be charged a balance transfer fee by the new card provider. This fee is usually a percentage of the outstanding balance amount, which will be added to the overall amount that you owe. 

Balance transfers can be an effective method of credit card debt consolidation if you take advantage of the 0% interest rate period to repay your credit card balance. Be aware of when the promotional period expires. The interest rate following a 0% promotion can be high and if you have not paid off the credit card, you will be charged interest on your outstanding balance.

Using a debt consolidation loan

A debt consolidation loan is designed specifically to combine all your debts into one loan. When you use a debt consolidation loan, you can make one repayment to one provider rather than repaying several debts to different lenders. 

There are two forms of debt consolidation loan: secured and unsecured loans. 

Secured loans

If you choose a secured loan, the amount that you borrow will be secured against an asset that you own, such as your home or car. If you miss any loan repayments, you are at risk of having your home or car repossessed by the lender. 

If you have a poor credit history, you may be more likely to be accepted for a debt consolidation loan if you opt for a secured loan. Lenders have lower risk exposure when they provide secured loans, so the chance of an application being accepted is often higher. 

Unsecured loans

If you take out an unsecured loan, you don't need to provide an asset as security, which typically makes unsecured loans lower risk. Secured loans are considered higher risk for the borrower, so lenders will often offer lower interest rates on secured loans than unsecured loans. 

Using a loan for credit card debt consolidation can also be helpful for managing your finances and budgeting. When you take out a loan, you decide the term of the loan straight away (usually between three and five years). You will have a clear repayment timeline outlining how you will repay the loan in full.

Using a personal loan to consolidate debt

You can use a personal loan to consolidate debt and personal loans often allow you to borrow larger sums of money than a credit card. Using a personal loan to pay off existing debts and consolidate what you owe can be a convenient way to clear credit card debt.

Most personal loans are available to use for whatever purpose you choose, but some lenders do prevent you from using personal loans to consolidate debt. Before you apply for a specific loan, make sure to check that you are able to use it for the purpose of debt consolidation.

If you are looking to borrow a large amount of money, personal loans can offer better interest rates than credit cards. If a low interest rate is available, using a personal loan to consolidate your debt can reduce the amount of interest that you pay significantly.

Keep in mind that the best interest rates are often only available to applicants with good credit scores, so make sure that you check your credit score before you apply for a loan.

What are the alternatives to debt consolidation?

Debt consolidation is not the only way to reduce credit card debt. There are a number of alternatives that you can consider before you decide which approach to take.

Reduce debt with savings

Interest on cash savings is at an all-time low. If you have savings as well as debt, you’ll be paying far more interest on the debt than you are earning on cash in the bank. Use your savings to pay down your outstanding debt and you can pay off the loan in less time, as well as paying less interest.

Reduce your expenses

Review all your monthly expenses and bank statements line by line to build a comprehensive picture of where all your income goes each month. You may find that you are overspending in some areas of your life where you can make changes to save yourself money. Create a budget that you can stick to, and put any remaining money at the end of the month towards paying down debt.

Remortgage your home

If you are a homeowner, you can consider remortgaging to pay off your credit cards or loans. When you remortgage, you release cash from the equity that you have in your property and you can use this cash to pay off outstanding debts. Mortgage rates are at record lows, so if you have high interest debt on credit cards, consider whether remortgaging is an option.

Before agreeing to a remortgage, a lender will consider the value of your property as well as your credit score. Remortgaging will also involve a range of fees, which should be factored into your decision. Increasing the size of your mortgage will also increase your monthly repayments to the bank, so make sure that you can meet the payments before you choose to remortgage.

Should you consolidate your debt? 

Consolidating debt can be a helpful way to clear credit card debt more quickly, particularly if you are paying high interest rates on existing debt that you have. Combining your debts into one monthly payment often costs less than borrowing on credit.

It is important to weigh up the pros and cons of debt consolidation and consider how much you will save in total, after paying the charges and fees involved. Make sure that you will be able to afford the monthly repayments required with any consolidation option before you go ahead. Keep in mind that the interest rate offered and terms of any borrowing option, will depend on your personal financial circumstances.

Remember that if you are struggling with existing debt, consolidating your payments may not be the answer you need. Speak to your lenders if you are concerned about defaulting on any repayments, and you can contact your local debt advice charity for more information and support.

10th June 2020