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Compare your current multiple debt payments to a single consolidated loan. See if consolidation reduces your monthly payment and total interest.
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Should You Consolidate Your Loans?
Debt consolidation combines multiple debts into a single loan, ideally at a lower interest rate. It simplifies payments and can reduce total interest, but isn't always the best choice. The key factors are the new interest rate, the loan term, and any origination fees.
When Consolidation Makes Sense
Consolidation is most beneficial when you can get a significantly lower interest rate (especially for high-APR credit card debt), you want to simplify multiple payments into one, and you commit to not accumulating new debt.
Watch Out for Longer Terms
A lower monthly payment with a longer term might feel easier, but you could end up paying more in total interest. Always compare total cost (not just monthly payment) between your current plan and the consolidation offer.
Types of Consolidation Loans
Personal consolidation loan: An unsecured loan from a bank, credit union, or online lender. Rates range from 6-36% depending on credit. No collateral required but rates are higher than secured options.
Home equity loan/HELOC: Uses your home as collateral. Rates are typically lower (5-9%) but your home is at risk if you can't repay. Only available to homeowners with sufficient equity.
Balance transfer credit card: 0% intro APR for 12-21 months. Best for smaller amounts you can pay off within the intro period. Transfer fees of 3-5% apply. See our Credit Card Payoff Calculator.
Debt management plan: Nonprofit credit counseling agencies negotiate lower rates with creditors. Not technically a loan — you make one payment to the agency, which distributes to creditors.
The Hidden Trap of Consolidation
The biggest risk of consolidation is that it frees up your credit cards, tempting you to run up new balances. This can leave you with BOTH the consolidation loan AND new credit card debt. Before consolidating, commit to not using credit cards until the consolidation loan is fully paid off.
When Consolidation Doesn't Make Sense
Don't consolidate if the new rate is close to your current average rate, you're close to paying off your current debts anyway, you'll extend the term so much that total interest increases, or you haven't addressed the spending habits that created the debt.