Debt consolidation: know what you’re getting into before signing

30/04/2026

Most of us have taken out a loan – or may need to at some point – to pay for further studies, change cars or buy a home. Loans can help with major expenses, but some people also rely on credit to pay for everyday purchases or unexpected costs when they don’t have enough savings.

Before long, you could be juggling a mortgage, car finance, instalments on a new washing machine, and smaller monthly payments for a mobile phone bought with a credit card. You may find yourself with several loans at the same time, perhaps with different lenders, and feel that your finances are becoming ever harder to manage.

These situations, which are quite common, may arise after an unexpected expense if you don’t have savings to fall back on, or because of poor planning and repeated impulse purchases. One way to make repayments easier to manage is through debt consolidation. While it may be useful for people with several monthly payments who are struggling to keep up, it is an option that should be avoided where possible. The golden rule is simple: before applying for a loan, ask yourself whether you really need what you are buying and, more importantly, whether you can comfortably afford the repayments.

Debt consolidation involves bringing several debts together into a single new loan, leaving you with just one monthly payment. Sometimes, that payment is lower than the total amount of your previous monthly payments. Here is how it usually works:

To consolidate your debt, the lender will first assess the type, amount and term of each loan. If they consider the new arrangement affordable, they may offer you a new loan.  Your existing loans are then paid off early and replaced by the new one. This could be a personal loan or, if one of your debts is secured against your home, a mortgage or secured loan. In practice, debt consolidation means moving from several payments to one, with one interest rate and a single repayment term, which is often extended to bring down the monthly amount.

While this can make your finances easier to organise and manage, it is important to think carefully about the following:

• Your monthly payment may be lower if the repayment term is extended, as is often the case. However, this usually means you will pay more overall. It may give you some breathing space now, but it ties up your future income for longer. You could also end up paying for items long after you have stopped using them.

• You will have to pay additional costs, including early repayment fees on your existing loans and arrangement fees for the new one. If a broker or intermediary is involved, you will need to pay their fees too.

• You should check the interest rate on the new loan: consolidating your debts should not, in itself, make borrowing more expensive.

Before going ahead, compare your current repayments and total costs with those under the new arrangement.