If your business is juggling several different debts, consolidation (pulling all your debts together into one single debt) can simplify things by combining them into a single repayment. It's worth understanding exactly how it works before deciding if it's the right move.

Debt consolidation made simple

Debt consolidation involves taking out a new loan to pay off several (maybe all) of your existing debts, leaving you with one single repayment instead of multiple. The aim is usually to simplify management, potentially secure a lower overall interest rate, or extend the repayment term to reduce monthly outgoings, even if that means paying more in total interest over a longer period.

When it makes sense

Consolidation tends to work best when you're currently juggling multiple debts at different rates and terms, making it hard to track what you owe and when. It can also help if some of your existing debt carries a high interest rate that a consolidation loan could genuinely improve on. It's less useful if your existing debts already carry good rates, since consolidating could end up costing more overall.

What to check before consolidating

Before committing to a consolidation loan, check the details carefully:

•        The total cost of the new loan across its full term, not just the monthly payment

•        Whether existing debts carry early repayment penalties that would add to the cost

•        Whether the new loan requires additional security you weren't providing before

•        How the new repayment term compares to what you're currently paying

Alternatives to consider

Consolidation isn't the only option if managing multiple debts feels overwhelming. Speaking directly to existing lenders about revised terms, seeking free advice from a business debt charity, or simply reprioritising which debts to pay down first can sometimes achieve a similar outcome without taking on new borrowing. It's worth weighing these options against consolidation before committing to a new loan.