Debt consolidation sounds like a magic bullet: combine all your debts into one loan with a lower interest rate, make a single monthly payment, and watch your debt shrink faster. And sometimes, it is exactly that. But it's not right for everyone.
How Debt Consolidation Works
You take out a single personal loan (or use a balance transfer credit card) to pay off multiple existing debts — usually high-interest credit cards. Instead of juggling 4 credit cards with rates between 19-26%, you have one loan at 8-15%.
Example: You have $15,000 across three credit cards averaging 22% APR. Minimum payments of $450/month would take 4.5 years and cost $9,800 in interest. A consolidation loan at 10% APR over 48 months costs $380/month and $3,240 in interest. Savings: $6,560.
When Consolidation Makes Sense
- You have multiple high-interest debts (above 15% APR)
- Your credit score qualifies you for a lower rate than your current average
- You're committed to not running up new debt on the paid-off cards
- The total cost (including origination fees) is less than your current trajectory
When It Doesn't
- Your credit score won't get you a better rate. Consolidating 22% debt into a 24% loan is pointless.
- You'd extend the payoff timeline significantly. Lower payments over 7 years might cost more total interest than higher payments over 3 years.
- You'll keep spending on credit cards. Consolidation only works if you stop creating new debt. Otherwise, you end up with the consolidation loan plus new credit card debt.
- Origination fees are too high. A 5-6% origination fee on a $20,000 loan is $1,000-$1,200 — factor this in.
Your Consolidation Options
- Personal loan: Fixed rate, fixed term, predictable payments. Best for $5,000-$50,000 in debt. See our loan comparison.
- Balance transfer card: 0% intro APR for 15-21 months. Best for under $10,000 that you can pay off within the intro period. See our Balance Shield card.
Use our Loan Calculator to see the exact numbers for your situation before you apply.
