It is really frustrating to have to keep track of contending debts such as credit cards, short-term loans, and store loans. In this case, each has its interest rate, due date, and you run a risk of penalty. Seems like debt consolidation using personal loans would be a perfect solution for this situation. In 2025 the debt consolidation trend is gaining more popularity in the UK and USA where more people are adopting this method to make their finances easier and still have some money left.
What is Debt Consolidation?
It is the practice of merging the debts that the person has into a single one loan. By doing that, you only have to make one payment, the one for the personal loan, instead of managing the different payments for each of your creditors.
👉 Illustration: If three credit cards each with an interest rate of 25% were to be replaced with one loan at 8%, you would save a significant amount of interest.
Why Use a Personal Loan for Debt Consolidation?
 Lower Interest Rates
- Usually, the annual percentage rate for credit cards is between 20% and 30%.
- If you can get a personal loan with a decent credit rate, it will be about 6%-12% APR.
Over time, this gap can keep a heap of money that can run up to thousands of dollars.
One Monthly Payment
You won’t have to be a circus performer with all those multiple due dates anymore. Simply having a monthly payment of one fixed amount will help you keep track of your payments and steer clear of late fees.
Fixed Repayment Schedule
A personal loan is typically a 1-7 year deal. So, the exact date of your freedom from debt will be clear, which is not the case with credit cards that have no end.
Credit Score Benefits
Justifiably, consolidation of debts may:
- Reduce credit usage rate (due to accounted balances).
- Raise your credit history with regular punctual payments.
- Raise your credit profile as you diversify your credit mix with a new credit type (installment loan).
UK vs USA: What to Expect in 2025
- United Kingdom: The typical debt consolidation loan offered by major banks such as Santander, Nationwide, and credit unions is usually around 5.8%–6% APR with the best applicants.
- United States: Credit unions like Patelco or Navy Federal offer savings-secured loans at a rate of 2.5%–3.5% APR, whereas the average rate for online lenders is between 7% and 20% APR depending on the borrower’s credit score.
Things to Watch Out For
- Origination fees: There are lenders who charge a fee of 1%–5% of the loan amount.
- Longer terms mean more interest: Extending your loan can leave you with lower monthly payments but the total amount of interest will be higher.
- You have to be disciplined: If you get into the habit of using your credit cards after consolidation and balancing, you will find yourself in even deeper debt.