Debt consolidation calculator UK

How your consolidation savings were calculated

We looked at several factors to determine if debt consolidation could save you money:

1. Your total debt. You have £0 across 2 debts. This is the amount you would borrow with a consolidation loan.
2. Your current payments. You're currently paying £0.00 per month across all debts.
3. Your current interest rates. Your weighted average APR is 0.0%. Higher-rate debts benefit most from consolidation.
4. Your credit score. Your score is in the Fair band, which means you could qualify for a consolidation loan at around 0% APR.
5. The loan term. A 3-year term balances lower monthly payments with total interest paid.

How debt consolidation works

Debt consolidation means taking out a new loan to pay off multiple existing debts. Instead of managing several payments with different interest rates and due dates, you make a single monthly payment on one loan.

The potential benefits include:

• Lower interest rate. If your consolidation loan has a lower rate than your current debts, you'll pay less interest overall.
• Simpler finances. One payment instead of many makes budgeting easier and reduces the risk of missed payments.
• Fixed end date. Unlike credit cards where minimum payments can stretch debt over decades, a consolidation loan has a set term.

However, there are potential downsides:

• Longer repayment term. Spreading payments over more years means paying more interest overall, even with a lower rate.
• Fees. Some loans come with arrangement fees that add to the cost.
• Risk of more debt. If you don't close old credit accounts, you might be tempted to run up new balances.

Is debt consolidation right for you?

Debt consolidation typically makes sense when:

• You have multiple high-interest debts (credit cards, store cards, overdrafts)
• Your credit score qualifies you for a lower rate than your current average
• You can commit to not taking on new debt whilst paying off the loan
• You want a clear end date for becoming debt-free

Consolidation might not be the best choice if:

• Your current rates are already competitive (below 10%)
• You have a poor credit score that would only qualify for high-rate loans
• Your total debt is small enough to pay off quickly with focused effort
• You're eligible for a 0% balance transfer card instead

Alternatives to debt consolidation

Before committing to a consolidation loan, consider these alternatives:

• Balance transfer cards. Some credit cards offer 0% interest on transferred balances for 12-24 months. This can be cheaper than a consolidation loan if you can pay off the debt within the promotional period.
• Debt management plan. A free service from debt charities like StepChange can negotiate lower payments with creditors and freeze interest.
• Avalanche method. Focus extra payments on your highest-rate debt whilst paying minimums on others. This minimises total interest without needing a new loan.
• Snowball method. Pay off smallest debts first for psychological wins, then roll those payments into larger debts.

How to improve your consolidation loan rate

The interest rate you're offered on a consolidation loan depends heavily on your credit score. Here's how to improve your chances of getting a better rate:

• Register on the electoral roll at your current address. This helps lenders verify your identity and can boost your score.
• Check your credit report for errors. Dispute any inaccuracies with the credit reference agencies.
• Reduce your credit utilisation by paying down card balances below 25% of your limits.
• Avoid hard credit checks in the months before applying. Each application can temporarily lower your score.
• Build your credit history with consistent, on-time payments. A credit-building app like Wollit can help by reporting a monthly subscription as a loan repayment to all three credit reference agencies.

Even a small improvement in your credit score could move you into a better rate band, potentially saving hundreds or thousands of pounds over the life of a consolidation loan.