Top 10 ways people accidentally increase the total cost when consolidating debt

Understanding the Risks and Benefits of Debt Consolidation

✓ Potential Benefits

• Single monthly payment instead of multiple payments
• In some circumstances, may reduce your monthly payment amount
• In some circumstances, may lower your interest rate compared to existing debts
• May help with budgeting when managing one payment instead of several

Note: Benefits depend on individual circumstances, credit profile, and the specific products compared. Results will vary.

⚠ Important Risks

• May pay more interest over the full term
• Could extend your debt repayment period significantly
• Risk of losing your home if secured against property
• May face fees and charges that increase total cost
• Could worsen financial position if you re-borrow

Quick table: the “cost-increasers”

Mistake	How it adds cost	Quick fix
1) Stretching the term	More interest over longer time	Keep term as short as affordable
2) Choosing “lower monthly payment” over “lower total payable”	You pay longer (more interest)	Compare total repayable, not monthly
3) Assuming you'll get the headline APR	You're offered a higher rate than expected	Get quotes + compare properly
4) Ignoring fees added to the loan	Fees increase what you borrow	Add all fees into your comparison
5) Moving unsecured debt into secured borrowing	Long-term interest + extra fees + home at risk	Be very cautious; compare alternatives
6) Paying ERCs/settlement costs to clear old borrowing	Charges reduce/erase savings	Ask for settlement figures first
7) Paying balance transfer/money transfer fees	Upfront % fee adds to cost	Calculate fee vs interest saved
8) Not clearing before 0% ends	Standard APR kicks in	Set payoff plan + reminders
9) Missing payments (loan or card)	Promo can be lost; extra interest/fees	Set minimum DD immediately
10) Re-borrowing after “wiping” cards	You end up with more debt	Close/freeze cards; change habits

1) You extend the repayment term to “make it affordable”

Lower monthly payments often come from more months of interest. StepChange notes that consolidation loans can last longer and end up with higher total interest.

Avoid it: Choose the shortest term you can realistically sustain—and overpay if permitted.

2) You compare monthly payments instead of total repayable

A consolidation loan can look “cheaper” monthly but still cost more overall if it takes longer to repay. National Debtline flags that consolidation can take longer than your original debts and become more expensive long term.

Avoid it: Compare “total amount repayable” (interest + fees), not just the monthly figure.

3) You assume the advertised APR is the rate you'll get

Advertised rates are typically only available to applicants with strong credit profiles, so you might be offered a higher rate than expected.

Representative Example - Personal Loan

Borrowing £10,000 over 5 years (60 monthly payments)

Representative APR:9.9% APR

Monthly payment:£212

Total amount repayable:£12,720

51% of customers receive the representative rate or better. Your actual rate may be higher depending on your circumstances.

Representative Example - 0% Balance Transfer Card

Transferring £5,000 of existing credit card debt

0% period:18 months

Balance transfer fee:3% (£150)

Amount transferred to new card:£5,150

Standard APR after 0% period:24.9% APR (variable)

This is an illustrative example. Actual 0% periods, fees, and subsequent APR vary by provider and your credit profile. If you don't clear the balance before the 0% period ends, the standard APR applies to the remaining balance.

Avoid it: Shop around and compare like-for-like offers (same amount + same term).

4) You forget fees (and they get rolled into the borrowing)

Fees can be added to the amount you borrow, increasing both the balance and possibly the term.

Secured loans can also come with legal, admin, valuation and other fees.

Avoid it: Add every fee into your “total repayable” comparison.

5) You move unsecured debt into secured borrowing (second charge / mortgage / further advance)

Secured borrowing can be repaid over longer periods and cost more in total interest, and it's tied to your home.

Avoid it: Only consider this if you've compared alternatives (loan vs balance transfer vs debt advice options) and you're confident it's affordable long-term.

6) You trigger early repayment charges (or underestimate settlement costs)

Clearing old borrowing early can involve an early repayment charge (ERC) depending on the product. MoneyHelper notes personal loan ERCs are typically capped (often 1% of the amount repaid early, or 0.5% in the final year, in many cases).

Mortgages can also have ERCs if you remortgage/switch before your deal ends.

Avoid it: Request settlement figures first, then redo your savings calculation.

7) You pay balance transfer/money transfer fees and don't factor them in

Balance transfers often charge a fee—MoneyHelper says it's usually around 3%.

Avoid it: Compare “fee cost” vs the interest you'd otherwise pay. Sometimes a slightly shorter 0% deal with a lower/no fee wins.

8) You don't clear the balance before the 0% ends

If you still owe money after the intro period, interest starts at the card's standard rate.

Avoid it: Set a payoff plan that clears the balance before the end date (and set calendar reminders).

9) You miss a payment and lose the deal (or make consolidation much pricier)

Missing card payments can mean fees and losing promotional offers. For consolidation loans, National Debtline warns that if you miss payments, a lender could demand full repayment including interest that would have been paid by the end—meaning you could owe much more.

Avoid it: Set up a direct debit for at least the minimum immediately, and build a small buffer so payments don't bounce.

10) You “clear” the cards... then run them up again

This is one of the biggest (and most common) ways consolidation backfires: you consolidate, feel relief, then use the freed-up credit again. StepChange warns that more borrowing can lead to even more debt.

Avoid it: Close or freeze cards where possible, remove saved card details from apps, and use a budget plan.

Key Terms Explained

APR (Annual Percentage Rate): The total cost of borrowing over a year, including interest and most fees, expressed as a percentage. This helps you compare different credit products.
Balance Transfer: Moving debt from one credit card to another, typically to take advantage of a lower interest rate or promotional 0% period.
0% Balance Transfer Card: A credit card that charges no interest on transferred balances for a set promotional period (e.g., 12-24 months). After this period, the standard interest rate applies.
ERC (Early Repayment Charge): A fee charged by some lenders if you repay your loan or mortgage before the agreed end date. This is designed to compensate the lender for lost interest.
Secured Borrowing: A loan secured against an asset, typically your home. If you fail to make repayments, the lender can repossess the asset to recover the debt.
Unsecured Debt: Borrowing not secured against any asset, such as personal loans or credit cards. Generally carries higher interest rates than secured borrowing.

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⚠ Important Risk Warnings

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Debt consolidation may not be suitable for everyone. While it can simplify your finances, extending your repayment term typically means paying more interest overall, even if monthly payments are lower.

If you are struggling with debt, free advice is available from organisations such as StepChange, National Debtline, and Citizens Advice.

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