Debt consolidation involves rolling several existing debts into a new single loan. Instead of managing five different repayments each month, you’re left with one repayment, one lender, and one interest rate. The goal is to reduce complexity, improve cash flow, and lower your total interest costs. For people juggling multiple debts with high interest rates, particularly credit cards, consolidation can be a helpful reset that also improves budgeting and long-term financial stability.

One of the main advantages of consolidation is the ability to access a lower interest rate. A personal loan, for instance, may offer a smaller rate than a credit card, especially if you have a strong credit score. By locking in a lower rate, you may reduce the amount of interest paid over time, which will more than likely equate to significant savings, over the life of the loan.

Consolidation can also help you repay debt faster. With one fixed monthly repayment and a defined loan term, you have a clear end date, unlike revolving credit products where debt can linger for years.

There are psychological benefits, too. Managing one loan is far less stressful than keeping tabs on multiple lenders. It also reduces the risk of missed payments, which can damage your credit score. In fact, as long as you make your consolidated loan payments on time, your credit score may improve. That’s because lenders view on-time payments on a single loan more favourably than sporadic payments across several different debts.

However, consolidating debt isn’t a guaranteed money-saver. One of the risks is extending the loan term. Some lenders may offer lower repayments by spreading the debt over more years, but this can mean paying more in interest over time, even with a lower rate. It’s important to compare the total cost of the new loan, not just the monthly repayment.

You should also watch out for fees. Some lenders charge application or establishment fees on personal loans, and there may be early exit fees on your existing debts. These upfront costs can add up and potentially offset any savings.