- Consolidation only saves money if the new APR is lower than what you pay now, including fees.
- Watch origination fees and long terms that raise the total cost.
- Alternatives: balance transfer cards, nonprofit debt management plans and, for payday debt, credit union PALs.
How a debt consolidation loan works
- You take out one personal loan for the total you owe.
- The lender pays your creditors directly, or sends you the money to pay them.
- You repay the new loan in fixed monthly payments over a set term, often 2 to 5 years.
When it is worth it
| Keep the cards | Consolidation loan | |
|---|---|---|
| APR | 24% | 14% + 5% origination fee |
| Term | Paid off in 3 years | 3 years |
| Monthly payment | About $314 | About $287 (on $8,421 borrowed) |
| Total interest and fees | About $3,300 | About $2,360 |
Illustrative figures. If the loan’s APR were 22% with the same 5% fee, consolidating would cost about $280 more than keeping the cards.
- It helps if your credit lets you get a meaningfully lower APR and you stop using the paid-off cards.
- It hurts if fees and a longer term outweigh the lower rate, or if the cards fill back up.
Consolidating payday loans
Payday loans cost so much that almost any regulated loan is cheaper. A credit union PAL (max 28% APR) is the classic way to refinance payday debt. Also ask your payday lenders about extended payment plans. See how to get out of payday loan debt.
Alternatives to a consolidation loan
- Balance transfer credit card with a 0% intro APR, if you can pay the balance off before it ends (watch the transfer fee).
- Nonprofit debt management plan through an NFCC-affiliated credit counselor, which can lower card APRs without a new loan.
- Debt avalanche or snowball: pay extra on the highest-rate (or smallest) debt first.
Debt settlement companies that charge before settling any debt are a red flag. Under FTC rules, companies selling debt relief by phone generally cannot charge fees until they settle a debt.
Tried the free options first?If you still need a small short-term loan, you can send one request to our lender network. Compare the cost carefully.
See loan optionsFrequently asked questions
Is a personal loan good for debt consolidation?
It can be, if the new APR (including fees) is lower than your current debts and you stop adding new debt. Compare the total cost, not just the monthly payment.
Can I consolidate payday loans?
Yes. A credit union payday alternative loan or another regulated personal loan is almost always cheaper than payday loans. Also ask lenders about extended payment plans.
Does debt consolidation hurt your credit?
Applying causes a hard inquiry, and a new account lowers your average account age. Paying the loan on time and lowering card utilization can improve your score over time.