How a debt consolidation loan works
You take out one new loan and use it to pay off existing debts such as credit cards, overdrafts or other loans. You then make one monthly payment to the new lender.
It can save money if the new loan's rate is lower than the rates on your current debts. But if you spread the repayments over a longer period, you may pay more interest overall even at a lower rate.
Worked example
Consolidating £15,000 at 9% over 5 years costs £311.38 a month, £18,682.52 in total. Stretching the same loan to 7 years lowers the payment to £241.34 a month, but the total rises to £20,272.24.
Before you consolidate
Add up what you currently pay each month and the total you'd pay if you kept your existing debts, then compare that with the new loan. Check for early repayment charges on the debts you're clearing.
A consolidation loan secured on your home puts your home at risk if you can't keep up the repayments. If you're struggling with debt, free and confidential advice is available from MoneyHelper.
Inputs for the debt consolidation loan calculator
Amount to borrow
The total you need to pay off the debts you're consolidating.
Interest rate (per year)
The annual interest rate on your consolidation loan. The rate shown is only an example, so enter the rate from your quote. Interest is worked out monthly at one twelfth of the annual rate. Lenders may calculate interest differently (some charge it daily), so your actual payments can differ slightly.
Term
How many years you'll repay the new loan over.
CALCULATOR QUESTIONS
Debt consolidation loan calculator questions
Will a consolidation loan save me money?
Only if the total cost of the new loan is less than what you'd pay on your existing debts. Compare total amounts repaid, not just monthly payments.
Why might my monthly payment fall but the total cost rise?
Because a longer term means paying interest for more months. In the example above, going from 5 to 7 years saves £70.04 a month but costs £1,589.72 more in total.
Is a secured consolidation loan a good idea?
It may have a lower rate, but your home is at risk if you can't keep up repayments. It can also turn unsecured debt into debt secured on your home.
Where can I get free debt advice?
MoneyHelper, a free service backed by the government, can point you to free, confidential debt advice.