Debt consolidation brings credit cards, loans and overdrafts together into a single monthly payment that may be easier to track.
In this guide, we’ll explain how to consolidate debt and how to decide whether it’s the right decision for you and your finances.
We’ll cover:
- What debt consolidation means
- How it works
- The different ways to consolidate debt
- How debt consolidation impacts your credit score
- Debt consolidation and bad credit
- How to determine if debt consolidation is right for you
- How to manage your debt after consolidation
At Evolution Money, we offer debt consolidation loans to UK homeowners and have helped thousands of people just like you to better manage their monthly budgets.
Need more guidance on whether a secured loan is right for you? Visit our Loan Basics page for more useful guides.
What does debt consolidation mean?
Debt consolidation is the process of using another form of credit to pay off your existing debts. It brings the amount you owe across multiple lenders into one payment. You will receive an amount that clears all your existing debts, leaving you with just one payment to make each month.
At Evolution Money, we may be able to make it easier to settle your other accounts. Once you have settlement details from your creditors, we’ll see if we can pay them directly so you can have a clearer picture of your financial situation.
You could become debt free once you reach the end of your repayment term if you:
- Roll all your existing debts into a consolidation loan
- Meet your monthly payments
- Avoid taking out any other forms of credit
How to consolidate debt into one payment
One way to consolidate debt is to take out a debt consolidation loan. Debt consolidation loans combine all your existing debts into one, which means you’ll only have one monthly repayment, one interest rate and one lender to deal with.
How do debt consolidation loans work?
Different lenders will have different processes and criteria for their products. At Evolution Money, the process looks like this:
- Eligibility check: To get a secured loan with us, you’ll need to be a UK homeowner aged at least 21. Any loan from Evolution Money must be repaid before you turn 70. Using our online form, tell us how much you need to cover your debts. It’s also wise at this stage to confirm with creditors that you can repay early.
- Talk to us: We will then be in touch to discuss your situation. We’ll go through checks (such as assessing your credit file, income & expenditure and financial history) and then tell you how much your monthly payments could be. We’ll also tell you what your total repayment figure could be. It’s possible that it will cost you more over the life of a secured loan. It’s important that we make sure the loan we provide suits your circumstances, and that it will be affordable now and throughout the agreed term.
- Pay off existing debts: Once fully approved, you can use the loan funds to pay off your other debts. At Evolution Money, we can make this process easier by paying your creditors directly. This could save you considerable time.
- Repay consolidation loan: Then, all that’s left to do is make your monthly payments until your loan is paid off. We’ll help you set up a direct debit so you may not need to worry as much about payment dates and potential impacts on your credit file.
Alternatives to secured debt consolidation loans
- Credit cards: Some cards may offer introductory fixed periods with repayments at low rates of interest (or even zero percent). Be aware that there may be a fee to transfer balances onto these cards. They could also be difficult to get if your credit score is not high. You may find that the interest rate increases after the introductory period. This could increase the total amount you have to repay.
- Personal loans: An unsecured personal loan does not include any possessions as security. Again, they may not be available if you don’t have a high credit score. Lenders typically offer less money for unsecured loans, so you may not secure enough to fully consolidate what you owe.
- Overdrafts: Extending or applying for an overdraft with your current account may be quicker as you’re an existing customer. However, it’s less likely that you would be offered an overdraft with better interest rates than a loan. A large overdraft is a common debt that is sometimes paid off by a consolidation loan.
- Debt solutions: This includes processes such as individual voluntary arrangements (IVAs), debt management plans and debt relief orders. These may help if you are at risk of bankruptcy or if loans, credit cards and other costs are impacting your ability to cover essential living costs. For more information on debt solutions, visit the Citizens Advice website or MoneyHelper.
Does debt consolidation hurt your credit?
Opening any form of credit, be it a loan or a credit card, will alter your credit file in some way.
Many companies will allow you to enquire or check your eligibility using a “soft search”. This will have no impact on your credit file. As part of the application process, lenders will likely perform a “hard search” of your credit file. This helps them assess how you have handled finance in the past and whether you pose a risk as a borrower.
A hard search may result in your credit score dropping slightly. However, if your score is already healthy, this drop may be insignificant.
If you meet the regular payments, this could help you build your credit score. Increasing the types of credit on your file and decreasing how much credit you’ve used are other potential benefits of taking out a debt consolidation loan.
Can I consolidate debt with bad credit?
It’s harder to get a debt consolidation loan with bad credit, but not impossible. It depends entirely on the lender’s criteria. If you’re a homeowner, you might be more likely to be approved for a secured loan. This is because your home will be used as security, which may reduce the risk for lenders.
To be eligible for a debt consolidation loan with Evolution Money, you’ll need to be a UK homeowner between the ages of 21 and 70. Even if you think your credit score might be too low, it’s worth applying if you meet our other criteria. Getting a quote won’t impact your credit score, so there’s no harm done even if you’re turned down.
For information on how to improve your credit score, see our guide: How long will it take to improve a bad credit score?
Is debt consolidation a good idea for you?
Debt consolidation may be worth considering if:
- It helps you manage your finances: A debt consolidation loan means one simple monthly repayment. If you’re making minimum payments on credit cards, it may keep you in debt for longer. Paying off your loan by direct debit brings your balance down over time and may help you know exactly where you stand.
- It could help you pay off debt faster: With different payment plans over varying timeframes, you may lose track of where you stand with certain lenders. Even one missed payment could have a significant impact on your financial health. Focusing on a payment plan may help you set a clear target for becoming debt free after you’ve paid off your creditors.
- It frees up more room in your budget: Chipping away at multiple debts could soon add up. Debt consolidation may allow you to reduce your monthly repayments, helping to potentially ease the pressure on your finances.
Like any kind of loan, debt consolidation might not be the best option for everyone.
You must assess your budget before taking on extra credit. You may have to pay an upfront cost or add fees on top of your existing debts. If you don’t have a high credit score, you may find it difficult to access the best interest rates.
If a debt consolidation loan will mean you are paying more overall, it’s worth seeking other options. You can get impartial debt advice from organisations such as MoneyHelper, StepChange or National Debtline.
How to manage debt after consolidation
Consolidating debt could be an option if you’re looking to better manage your finances. However, you’ll need to manage your debts carefully after consolidation to avoid running into further financial problems.
To manage your debt after consolidation:
- Make payments on time: Missing payments may lead to fees, which could get you into further debt. Missed payments might also negatively affect your credit score, and you could miss out on any promotional interest rates.
- Repay as much as you can: There will be a minimum required payment each month, but it’s a good idea to pay more than the minimum if you can afford it. This could allow you to pay off your debt faster and reduce the overall amount of interest you have to pay. With Evolution Money, you can make unlimited overpayments without charge. Find out more in our loan overpayments guide.
- Try not to take any more credit: This is likely to plunge you further into debt and may make it more difficult to manage your finances and become debt free.
- Budget and keep track of your finances: You may find it useful to create a monthly budget after consolidating your debt. This will help ensure you can afford the payment and track your progress towards becoming debt free.
- Set up a standing order or direct debit: This means your payments will be taken each month automatically, so you don’t have to worry about accidentally missing one.
- Seek help early if you’re struggling: You can contact your lender to find out what options are available if you’re struggling to pay. Get in touch with organisations like MoneyHelper, StepChange or National Debtline for impartial advice.
How to consolidate debt with Evolution Money
If a debt consolidation loan will help you better manage your finances, use our online form to check your eligibility today.
We offer secured loans from £5,000 to £105,000 to UK homeowners that could help you take the reins again. Find out why we’re rated ‘Exceptional’ on Feefo and have been awarded the platform’s Platinum Trusted Service Award.
All loans are subject to status and eligibility. Available to UK homeowners aged 21 or over. Terms and conditions apply. Not all applicants will be accepted.
Don’t rush into securing a loan against your home. Falling behind on mortgage or secured loan repayments may put your home at risk of repossession.
Representative 17.46% APRC (Variable)
For a typical loan of £23,120 over 120 months with a variable interest rate of 17.46% per annum, your monthly repayments would be £442.07. This includes a Product Fee of £2,312.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £53,047.80. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
