One of the main reasons people consider debt consolidation is the potential to reduce their monthly outgoings. But how much could you actually save? The answer depends on several factors specific to your situation, including the interest rates on your current debts, the rate you could secure on a consolidation loan, and the repayment term you choose.
For a full overview of how consolidation works and the options available, read our complete guide to debt consolidation.
What Affects How Much You Could Save?
Your potential savings from debt consolidation are influenced by several key factors:
- Your current interest rates: The higher the interest rates on your existing debts, the greater the potential savings from consolidating at a lower rate. Credit cards commonly charge 18% to 30% APR or more, while store finance and overdrafts may also carry high rates.
- The consolidation loan rate: The rate you are offered depends on whether the loan is secured or unsecured, your credit profile, the loan-to-value ratio (for secured loans), and the loan amount and term. Secured consolidation loans may offer rates from around 6% to 15%.
- The repayment term: A longer term reduces your monthly payments but increases the total interest paid. A shorter term costs more each month but less overall. Finding the right balance is key.
- Total amount of debt: The more you owe at high interest rates, the more significant the potential monthly savings from consolidating at a lower rate.
- Fees and charges: Arrangement fees, valuation fees, legal costs, and any early repayment charges on your existing debts all need to be factored in, as they can reduce (or in some cases eliminate) the overall saving.
Worked Examples
The following examples are for illustration purposes only and do not represent quotes or guarantees. Your actual figures will depend on your individual circumstances.
Example 1: Credit Card Debt
Suppose you have three credit cards with a combined balance of £15,000 at an average APR of 22%. If you were to make minimum payments only, it could take over 20 years to clear the debt, and you would pay a substantial amount in interest. If you consolidated this into a secured loan at 8% over 10 years, your monthly payment could be around £182. The total cost of the secured loan would be approximately £21,840. While the monthly payment is potentially lower and more predictable than juggling three minimum payments, it is important to compare the total cost of both scenarios to determine the true saving.
Example 2: Mixed Debts
Consider a homeowner with £25,000 in mixed debts: £12,000 across two credit cards at 24% APR, a £8,000 personal loan at 15% APR, and £5,000 on a store card at 28% APR. The combined monthly payments across all four debts might total £700 to £900 depending on the terms. Consolidating into a single secured loan at 9% over 15 years could reduce the monthly payment to around £254. That represents a potentially significant reduction in monthly outgoings, freeing up several hundred pounds each month.
However, over the full 15-year term, the total amount repaid on the secured loan would be approximately £45,720. It is essential to compare this against what you would have paid in total under your existing arrangements. In some cases, the total cost of the consolidation loan may be higher, even though the monthly payments are lower.
Example 3: Shorter Term Consolidation
If the same homeowner from the example above chose a shorter term of 7 years instead of 15, the monthly payment would be higher — perhaps around £400 — but the total interest paid would be considerably less. If the monthly payment is still affordable, a shorter term could deliver both a lower monthly cost than the combined existing debts and a lower total cost overall. This is why it is so important to explore different term lengths with your broker.
| Scenario | Monthly Payment | Total Cost | Term |
|---|---|---|---|
| £15k credit cards (22% APR) | ~£350+ (minimums) | Varies widely | 20+ years |
| Consolidated at 8% / 10 years | ~£182 | ~£21,840 | 10 years |
| £25k mixed debts (15%–28%) | £700–£900 | Varies widely | Mixed terms |
| Consolidated at 9% / 15 years | ~£254 | ~£45,720 | 15 years |
| Consolidated at 9% / 7 years | ~£400 | Significantly less | 7 years |
Try it yourself: Use our debt consolidation calculator to estimate your potential monthly savings based on your specific debts, interest rates, and chosen repayment term. The calculator provides illustrative figures to help you compare your options.
Always compare two numbers: the monthly payment and the total cost of borrowing over the full term. A lower monthly figure can hide a significantly higher overall cost.
The Total Cost Warning
This point is important enough to emphasise: lower monthly payments do not always mean you are saving money overall. When debts are consolidated over a longer term, the total amount of interest you pay could be significantly higher than if you had continued with your original repayment plans.
A responsible broker will always show you two figures: the monthly payment and the total cost of borrowing over the full term. If the monthly savings are important to you (for example, because you are struggling to meet your current commitments), consolidating over a longer term may still be the right decision. But you should make that choice with full awareness of the trade-off.
One approach that could give you the best of both worlds is to take a longer-term loan for the lower monthly payment, but make overpayments when you can afford to. Many secured loans allow overpayments without penalty, which can significantly reduce the total interest paid. Always check the terms of your loan before making overpayments, as some products may charge early repayment fees.
How to Get an Accurate Picture
While calculators and worked examples provide useful illustrations, the most accurate way to understand your potential savings is to speak with a specialist broker. They can:
- Assess your full debt picture and identify which debts are worth consolidating and which may be better left as they are
- Search the market for the most competitive rates based on your specific circumstances, including your credit profile and property equity
- Provide a clear comparison of the monthly payment and total cost under different scenarios and term lengths
- Factor in all fees and charges so you have a true picture of the overall cost
- Advise on the most appropriate type of consolidation for your situation, whether that is a secured loan, unsecured loan, or another option
If you would like to find out what consolidation could look like for you, complete our short online enquiry form. It takes just a few minutes, and there is no obligation and no hard credit search for your initial quote.
You can also read more about the pros and cons of debt consolidation to help you decide whether it is the right step for your situation.
- Monthly savings depend on the gap between your current interest rates and the consolidation loan rate.
- Homeowners consolidating high-interest credit card debt into a secured loan at 6%–15% could see meaningful monthly reductions.
- Lower monthly payments over a longer term can mean paying more in total interest — always compare both figures.
- Choosing a shorter repayment term or making overpayments can reduce total cost while still lowering monthly outgoings.
- A specialist broker can provide a personalised comparison accounting for all fees, rates, and term options.