Debt Consolidation Calculator
Updated: April 2025 for 2025/26 tax year | Data sources: HMRC, ONS, Bank of England
Determine if consolidating your debts into a single loan saves money.
Is Debt Consolidation Right for You?
Debt consolidation merges multiple high-interest debts into a single lower-interest loan. It simplifies finances (one payment instead of five), potentially lowers interest, and can free up cash flow. However, it's not a silver bullet. Consolidating doesn't erase debt; it restructures it. Without behavior change, people re-accumulate debt while still paying the consolidation loan, doubling their total obligations.
When Consolidation Makes Sense
Consolidation works when: (1) your new rate is significantly lower (2%+ below average), saving real interest; (2) you commit not to re-accumulate debt (close cards or discipline yourself); (3) the loan term doesn't extend so long that total interest exceeds current debts; (4) you have stable income to support the fixed payment. If you're consolidating to free cash flow but have no plan to avoid re-borrowing, you'll end up worse off.
The Trap: Longer Terms, More Interest
Lenders tempt borrowers with low monthly payments by extending terms. A £15,000 debt consolidated into a 10-year (120-month) loan feels manageable month-to-month but costs far more in total interest than the current debts. This calculator lets you test term lengths: compare a 5-year consolidation vs. your current term. Often, keeping a similar term is crucial to actually save money.
Secured vs Unsecured Consolidation
Unsecured consolidation loans (personal loans) offer no collateral guarantee, so rates are higher (6-15% APR typically). Secured loans (against home equity) offer lower rates (4-8%) but risk your home if you default. For most people, unsecured loans are appropriate. Only consider secured consolidation if rates are dramatically lower and you're very confident in income stability.
The Behavioral Element
The biggest consolidation failure isn't math—it's behavior. People consolidate credit cards to lower interest, then immediately max them out again. Now they have a £15,000 loan payment PLUS £5,000 newly borrowed on credit cards at 22% APR. They're worse off financially and emotionally. If you're considering consolidation, address the underlying spending issue first. Consolidation is a tool; financial discipline is the real solution.
Alternatives to Consolidation
Before consolidating, try: (1) negotiating directly with creditors for lower rates; (2) balance transfers to 0% cards (if you have good credit); (3) debt snowball/avalanche without consolidation (costs less in fees); (4) increasing income with side work, directing extra toward debts. Consolidation is one tool among many. Use this calculator to compare consolidation against your current trajectory.
Consolidation is excellent for simplifying finances and lowering interest—IF you address the root cause of debt and commit not to re-borrow. Use this calculator to test scenarios, then decide if consolidation helps or hurts your specific situation.
Frequently Asked Questions
Does consolidation hurt my credit score?
Initially, yes. A new loan inquiry and hard credit check cause a small dip. Closing old accounts hurts credit utilization. However, on-time consolidation payments rebuild credit over 6-12 months, making it worth it long-term if you manage the loan responsibly.
What if I can't qualify for a consolidation loan?
Poor credit makes consolidation harder. Consider: (1) secured loan using home equity or savings as collateral; (2) creditor hardship programs; (3) debt management plans through nonprofits; (4) debt snowball/avalanche without consolidation. Don't give up; options exist.
Should I close my credit cards after consolidating?
Don't close them immediately—it hurts credit utilization. Instead, stop using them, pay any balance to zero, then close them after 6-12 months of clean behavior. Or keep one card open for emergencies but don't use it for new debt.
Can I consolidate student loans?
Student loans have special rules. Federal student loans can be consolidated into direct consolidation loans (usually lower total interest). Private student loans can be consolidated with personal loans. The calculations differ; check student loan-specific resources.
What's a realistic consolidation APR?
Average UK personal loan rates range from 5-10% for good credit (scores 700+). Fair credit (600-700) might see 12-18%. Poor credit (below 600) faces 20%+. If your average current APR is below 8%, consolidation may not save money unless you already have decent credit.
Is it better to consolidate or just pay faster?
If your current interest is already low (under 8% average), and you can increase payments, debt snowball/avalanche may beat consolidation (fewer fees involved). Consolidation shines when rates are high (15%+ average) and you need to simplify payments or free up cash flow.
⚠️ Financial Disclaimer: Consolidation involves credit inquiries and new debt. Seek professional advice before consolidating. This calculator provides estimates only.