The dangers of using new loans to service old debts
By Mr Bankruptcy
2nd September 2026
Last year according to the Office for National Statistics, the British Government borrowed £128 billion to pay for public services. But interest payments for existing loans totalled over £130 billion.
We’re almost in the position where borrowing and interest payments cancel each other out, without even denting the principal.
Taking out a new loan to clear an old one, or just to cover its interest payments, can look like a lifeline. But while the nation can rely on tax revenue and long-term economic growth to sustain the cycle, private individuals and small businesses don’t have these luxuries.
For households facing rising energy bills or business owners managing fluctuating cash flows, the pressure to find a quick escape route can be overwhelming.
But is borrowing more money to pay off what you already owe a high-stakes, short term strategy that leads to a much larger crisis down the line?
How borrowing can work
Using new credit to pay off old debt is called debt consolidation or refinancing. The concept is straightforward; you take out a single, larger loan or a new credit card to pay off multiple smaller debts, such as overdrafts, personal loans, or store cards.
Instead of juggling different lenders, payment dates, and interest rates, you’re left with one single monthly payment. This simplifies your monthly budgeting and streamlines your financial management.
Debt consolidation can be an effective financial tool under certain circumstances:
- A lower interest rate: If the new loan has a significantly lower Annual Percentage Rate (APR) than your current debts, you can reduce the overall cost of your borrowing.
- Fixed repayment schedule: A structured personal loan with a clear end date can help you chip away at the principal balance instead of paying only the minimum interest amount on credit cards.
You still need the reliable income to make the new payment while meeting all your other everyday living or business running costs, but this can work to make your debt problem more manageable.
The dangers of borrowing to cover interest payments
Unfortunately, for many people, the theoretical benefits of consolidation don’t match the reality. New loans carry hidden setup fees, balance transfer penalties, or variable interest rates that inflate your total debt over time.
Moving unsecured debts like credit cards into a secured loan, for example a homeowner loan or a commercial mortgage, could be putting your most important assets, such as the family home, at risk if you fall behind on payments.
For me, the main issue is the illusion of freedom. Clearing your credit card balances with a loan can give a false sense of security if the underlying budget deficit isn’t fixed. It’s also easy to start spending and borrowing more on those cards again, making a debt problem worse.
Finding a more sustainable solution
If your debt is growing unmanageable, borrowing your way out is rarely the answer. Real recovery begins by addressing the root cause of your financial strain.
Start by building a clear budget that lists every penny of income and expenditure. If the numbers don’t balance, look for professional, objective guidance before taking on more credit.
There’s lots of free, impartial, confidential advice available across the UK from organisations like the StepChange Debt Charity, National Debtline, and Citizens Advice.
Accredited debt advisors and adjustors are also there to help individuals as well as businesses deal with complex debt problems. They can help you to understand your current financial situation and identify the most appropriate ways forward.
They are also experienced in supporting negotiations, advising or talking to creditors on your behalf.
Don’t forget that it never hurts to talk to a trusted friend or a loved one, if this helps share your concerns in exchange for some moral support. When it comes to taking control of a growing debt problem, finding the right support is usually more important than finding more credit.
James Rosa Associates
James Rosa Associates is a firm of specialist debt advisors and debt adjustors with a reputation for a friendly and non-judgmental approach to individuals, business owners and directors of companies of all sizes who want to tackle an unmanageable debt.
We are experienced at helping parties come to negotiated settlements of debt and act as mediators in debt and other disputes.
In addition, we offer a wide range of debt services, including insolvency support and personal assisted bankruptcy. We also help clients bring civil and commercial disputes to a swift and satisfactory conclusion for all sides.
Authorised and regulated by the Financial Conduct Authority (FRN665061), we work with clients to produce bespoke solutions to fit their specific circumstances.
Are you eligible for a free consultation?
We understand from first-hand experience how problem debt can harm the financial and personal wellbeing of individuals and business owners. Debt often affects more than just our clients.
In order to help as many people as we can, we offer a number of free consultations to eligible clients.
If you’d like to know more about a free consultation, contact James Rosa Associates, ring us on 0845 6807217 or email enquiries@jamesrosa.co.uk today to find out if you are eligible.