Pros And Cons Of Debt Consolidation

A consolidation loan is a loan taken out to clear multiple existing debts. Instead of juggling several debts with different lenders, you're left with just one debt and one monthly payment. It's designed to simplify your finances and, in some cases, reduce how much you're paying each month.

Debt consolidation is one of the most common reasons people take out personal loans in the UK. Research suggests that around 27% of personal loans taken out since September 2022 have been used for this purpose, with the average consolidation loan at around £12,700. In fact, estimates suggest UK consumers could borrow more than £13 billion in consolidation loans during 2025 alone.

Sound like a good idea? It might be for some people, but let's introduce Jason.

Jason has five different debts:

• Barclaycard Credit Card — £5,000
• Barclays Loan — £10,000
• Virgin Money Credit Card — £3,500
• John Lewis Credit Card — £2,000
• Santander Loan — £6,000

That's a total debt of £26,500. He's currently paying £1,200 each month towards his debts, which he admits is "getting him down." It really feels like he's just working to cover his debts, and he’s concerned because he knows he can't keep going like this. It’s affecting his quality of life, and he’s eager for a change.

The Consolidation Loan Application

Jason finds a lender offering consolidation loans that could solve his problems. He fills out an application and decides to go ahead, discovering he can reduce his repayments to a single monthly payment of £350 over a set period. He is delighted and signs the agreement.

On the surface, this appears to be a win. Jason has freed up £850 each month and has only one payment to manage. Many months pass, and Jason has been making payments perfectly, on time every month.

The Hidden Problem Behind the Debt

However, what you, the reader, didn't know about Jason is that he has a gambling problem. This is why Jason was in financial difficulty in the first place. He managed to free up £850 per month by consolidating his debts, and this just gave him money to feed his addiction.

Jason's situation isn't unusual. Research from the University of Bristol Personal Finance Research Centre has found that gambling is a significant driver of debt problems in many of the cases they studied, and that gambling-related harm is frequently linked to the use of consumer credit.

Figures from the Gambling Commission estimate that over 1.4 million people in Great Britain are experiencing or at risk of gambling harm. Survey evidence has also shown that problem gamblers were far more likely to use credit to fund gambling, with around 38% reporting credit card use compared with just 8% of non-problem gamblers.

How the Debt Spiralled Out of Control

Twelve months after he took out the loan, Jason finds himself facing a serious debt problem once again. You might wonder how this happened. If you recall, he had three credit cards (Barclaycard, Virgin, and John Lewis). He paid off all the outstanding balances on these cards, but he still had credit cards with zero debt, which meant he had £10,500 of available credit just lying there unused.

If you hadn't already guessed, he maxed out all of the cards again and is now paying £900 on the credit cards plus £350 on his consolidation loan. That's £1,250 per month — more than he was paying before consolidation.

This pattern occurs more frequently than you might believe. Analysis of credit file data by Experian suggests that although many consumers who take out consolidation loans reduce their debt significantly within the first few months, a considerable proportion actually end up borrowing more during the same period. Consolidation can be effective — but only if the underlying behaviour also changes.​

From Unsecured to Secured Debt: A Dangerous Move

Jason is understandably stressed. He hasn't told his partner he was gambling and is worried about her reaction.

He goes back to the same lender hoping to get another consolidation loan. However, the lender tells him that they can't offer him another one. Jason starts to panic because he really needs this loan. The lender then says, "There may be another way," and asks if Jason owns a property. Jason says he does, but he's a bit confused about why that question was asked.

The lender explains that they would be willing to consolidate his new debt along with the existing consolidation loan into a single loan — provided they can secure the debt against his property (a secured loan). Jason is unsure but feels he has no choice and signs the paperwork.

This is a critical moment. A secured loan changes the entire nature of your debt. With unsecured debt, creditors can pursue you through the courts, obtain CCJs, and even apply for charging orders — but your home is not directly at risk from the outset. With a secured loan, the lender has a legal charge against your property from the start. If you cannot keep up with the payments, the lender may ultimately apply to the court for an Order for Sale to force the property to be sold.

What do you think happened to Jason? The conclusion will come later.

Before we get to the outcome, let's lay out the potential benefits. Debt consolidation can work well when it's done for the right reasons and with a clear plan:

• You may get a lower interest rate — If your current debts carry high APRs (especially credit cards), a consolidation loan at a lower rate could save you money overall.
• Your monthly payments may be lower — By spreading your debt over a longer term, your monthly outgoing could drop.
• You make just one payment per month — No more juggling multiple dates and amounts. One payment, one lender, one date to remember.
• Your debt is with just one lender — This simplifies communication and makes it easier to stay on top of your finances.
• It may help your credit profile over time — In some cases, consolidating debts and making consistent repayments can improve your creditworthiness, although taking out a new loan may have a short-term impact on your credit file.

Now, let's consider the other side. Consolidation isn't a magic solution, and there are genuine risks to be aware of:

• You might end up with a higher interest rate—not everyone qualifies for the lowest rates. If your credit history is poor, the rate offered could be higher than your current one.
• You might need to secure the loan against your home — this alters the nature of your debt entirely. What was previously unsecured credit card debt could now be linked to your property.
• You might not be able to borrow enough to clear all your debts — If the loan doesn't cover everything, you're still making payments to multiple lenders, which defeats the purpose.
• Set-up costs and fees — Some consolidation loans come with arrangement fees, early repayment charges on existing debts, or other costs that don't contribute to paying down your debt at all.

There are two final cons, which, in our opinion, are the most significant. Let's head back to Jason's story first.

Getting straight to the point, Jason continued to gamble and use his credit cards. As a result, he nearly lost his home.

Due to missed payments on his secured consolidation loan, the lender attempted to force the sale of his property through an Order for Sale. An Order for Sale is a court process where a creditor with a legal charge on your property applies to the court for an order to sell it, using the proceeds to recover the debt. It's one of the most serious consequences of secured debt — and it is precisely where Jason ended up.​

Fortunately for Jason, a relative stepped in and prevented the forced sale. However, things didn't fare so well for his relationship. His girlfriend left him due to the stress of the situation and because she no longer trusted him.

The link between debt and relationship breakdown is well documented. Research from the Money and Mental Health Policy Institute found that around 46% of people in problem debt also have a mental health problem, and survey evidence shows that many people with mental health difficulties say their financial situation makes their mental health worse. Debt doesn't just affect your bank balance — it affects every part of your life

Consolidating all your debts in one place is one thing, but if…

• You haven't addressed the root causes that led you to this situation in the first place — whether that's overspending, gambling, a lack of budgeting, or an underlying mental health issue; the debt is merely a symptom, not the cause.
• You still have access to your previous credit facilities — those cleared credit cards with zero balances? They're still open. That available credit is temptation sitting right there in your wallet.

You risk ending up in a situation similar to Jason's. Taking paracetamol may provide temporary relief from the pain, but it doesn't necessarily address the source of the pain.

Why Addressing Root Causes Matters More Than the Loan

The data supports this. A study analysing bank transaction data showed a strong link between gambling and indebtedness, especially for those with unsecured debt. It also found that applications for debt consolidation are often rejected when gambling is identified as a factor. Additionally, researchers observed that most clients seeking debt advice engaged in gambling through taking on consumer debt.

The message is clear: consolidation can be effective, but only if paired with honest self-reflection on the reasons behind the initial debt. Without changing the behaviour, the debt will likely return — often worse than before.

The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.