Is Debt Consolidation a Good Idea?
Carol Pope is a personal finance writer who has experience writing about auto, home and life insurance as well as auto loans and mortgage escrows. Before joining LendingTree, she was a full-time writer for Bankrate. Carol also spent more than a decade as a Geico insurance agent and earned her B.A. in English with a specialization in writing from the University of Michigan – Flint. When Carol isn’t writing, she enjoys running, gaming and growing food in her Florida garden.
Expertise: Personal finance, student loans, personal loans, insurance and debt
Education: University of Michigan – Flint
- Expertise: Personal finance, financial planning, credit scores, savings, auto loans, education
Education: University of Texas at Austin
Katie Lowery is a deputy editor at LendingTree, where she oversees personal finance, debt and auto loans content. She is passionate about educating and empowering consumers to make informed financial decisions.
Before joining LendingTree, Katie spent more than a decade as a developmental and copy editor, where she edited content in a variety of fields, including finance, business, economics, science and education. She was the sole editor on multiple award-winning books.
Katie earned a bachelor’s degree in education from the University of Texas at Austin. She still lives in the Austin area with her family and enjoys collecting record albums and knitting.
- Expertise: Copy editing, personal finance
- Education: Smith College, City University of New York Graduate School of Journalism
Xiomara Martinez-White is a copy editor at LendingTree and its associated companies, where she edits multiple personal finance verticals.
Previously, she was a copy editor at BDG Media and its flagship publication, Bustle, and first honed her copy editing craft as a fashion assistant with the International Herald Tribune, working in Paris under famed fashion editor Suzy Menkes. She has also held internships at publications such as Marie Claire, People.com and the Metro.
Martinez-White earned a B.A. in English Language & Literature at Smith College and an M.A. at the City University of New York Graduate School of Journalism, concentrating in Arts and Cultural Journalism. She also attended the University of Cape Town and CELSA Paris as a visiting student.
If you’re overwhelmed by monthly credit card bills, you might be asking yourself, “Is debt consolidation a good idea?” Well, it depends.
If you have good credit and owe a large amount to several creditors, consolidation could save you time and money. But if your credit is poor or the amount of debt you have is manageable, this option might not be the best choice. Learn more about consolidation to decide whether it can help you pave a path to a debt-free life.
On this page
How to decide if debt consolidation is right for you
Debt consolidation is the act of borrowing money from one lender and using it to pay off multiple debts. Borrowing a debt consolidation loan (a type of personal loan) is a popular way to go about this, as is transferring multiple credit card balances to a balance transfer credit card.
Debt consolidation can be a lifesaver, but first you’ll need to decide if it’s the right option for your financial situation.
Use a debt consolidation calculator
Before deciding whether you should consolidate your debt, you’ll need to determine where your debt lies. Gather your monthly bills and tally up how much you owe and to whom — separate them into categories, such as credit cards, loans and medical debt. Then, add up how much you owe in each category, while taking note of your average APRs.
Once you have a clearer view of what you owe, you can use our debt consolidation calculator for personalized suggestions on how to best tackle your debt.
Consider your financial goals
Consolidating requires you to take out a new loan or line of credit that covers the entire balance of what you owe. As such, debt consolidation affects your credit score. You might see a dip due to the hard credit inquiry and new line of credit. However, making your monthly payment on time can boost your score over the long run.
For consolidation to be worthwhile, you’ll need to be serious about paying off your debt. After using our debt consolidation calculator, you may want to create a budget, making sure to include your estimated debt consolidation payment.
When is debt consolidation a good idea?
If the points below apply to you, then debt consolidation may be able to help you tackle your debt.
If you’re having a hard time juggling multiple bills
If you owe money to several lenders or credit card companies, it can be easy to accidentally let a bill or two slip under the radar. These missed payments can damage your credit score and may remain on your credit report for up to seven years.
With a debt consolidation loan, you’ll streamline the bill-paying process by combining all of your debt into a single bill.
If you can repay a debt consolidation loan in a reasonable amount of time
The longer your loan term, the more interest you’ll pay over the life of the loan. If you’re certain that you can repay your debt within a few years, debt consolidation could be a good option.
You may be able to use a debt consolidation loan to pay off your debt faster by lowering your APR or focusing on the definitive end date. Be sure to choose the shortest repayment term you can reasonably afford to keep borrowing costs low.
If it can save you money
If you can secure a lower interest rate than you’re currently paying, you could save money with a debt consolidation loan. Be sure to consider any upfront costs (such as origination fees) that could eat into your potential savings.
Some borrowers could see significant savings by using a balance transfer credit card with 0% APR to consolidate their debt. However, this strategy won’t be an option for everyone, as these types of cards are only available to those with strong credit. You’ll also need to repay the balance in full before the introductory period is over to avoid getting slammed with a double-digit APR.
If you have debt with high (or variable) interest rates
If the majority of your debt is on credit cards, you may want to consider a credit card consolidation loan. According to a LendingTree study, the average credit card interest rate was 24.06% in June 2023. In contrast, eligible borrowers could see single-digit interest rates on a debt consolidation loan.
Further, credit card APRs are usually variable, while personal loans are fixed — something that could provide stability in an uncertain economy.
If you’re actively working towards healthier spending habits
When used correctly, debt consolidation can help you work toward becoming debt-free. If you don’t address the spending habits that got you into trouble in the first place, though, you might find yourself back where you started.
Attending credit counseling while consolidating your debt can give you the tools you need to get — and stay — on track.
When is consolidation a bad idea?
Debt consolidation isn’t for everyone. Review the pros and cons of debt consolidation, as well as the information below, to help you decide whether this strategy is right for you.
If you still won’t be able to afford your payments after consolidation
Consolidation doesn’t erase your debt — it simply restructures it to make it easier (and hopefully cheaper) to repay. If you know that you still won’t be able to afford your payments even after consolidation, then a new loan won’t benefit you. As a last resort, you could look into bankruptcy.
If your debt burden isn’t very large
By its very nature, debt consolidation combines multiple debts into one. If you only owe money to two lenders or credit cards, taking a hard credit hit to consolidate may not be worth it.
If your APR will be higher after consolidation
Debt consolidation loans can offer low APRs for those with credit scores of 680 and above. If you qualify for a personal loan with a lower APR than what you have on your current debt, then consolidation may work to your advantage. Meanwhile, there are debt consolidation loans for bad credit, but you can expect to receive a high APR.
Before applying for a consolidation loan, take the time to prequalify. Prequalification doesn’t hurt your credit score, and it can help you compare your current APRs with ones that you might be eligible for.
How to get a debt consolidation loan
You might find a debt consolidation loan with terms you can afford by following these steps:
Figure out how much debt you have
The first thing you should do before applying for a debt consolidation loan is to figure out how much debt you’ll need to pay off. This number will determine the loan amount you should apply for.
Compare lenders
Once you know how big of a loan you’ll need to adequately pay your current debt, you can start shopping by comparing lenders. Keep an eye out for origination fees and prepayment penalties and avoid them, if you can.
To make things easy, check out LendingTree’s personal loan marketplace. You may receive up to five debt consolidation loan offers from top lenders by filling out a single form.
Apply for your loan
Once you’ve prequalified with a few lenders and have chosen the best fit for you, you can officially apply for a loan. During the application process, you’ll need to provide basic personal information like your name, date of birth, income and occupation.
The lender will also ask for some documents, such as a copy of your government-issued form of ID, pay stubs and proof of residency.
Review your loan offer and accept
Some lenders provide same-day approvals, while others can take up to a week. Once you’ve received your offer, review the terms carefully. If it’s up to snuff, you can sign your loan agreement.
Use your loan to pay off your debt
Typically, your lender will deposit your funds directly into your bank account — sometimes the same day you accept the loan, sometimes a few days later. Be sure to use your loan for its intended purpose and pay off your outstanding creditors. Some lenders will even offer an APR discount if you allow them to repay debts on your behalf.
Begin repayment on your loan
Repayment will typically begin 30 days after you close on your loan. You might find it easier to make your payments on time by signing up for autopay — in fact, many lenders offer an APR discount to borrowers who sign up for this feature.
Frequently asked questions
Yes, there are other strategies to become debt-free that don’t require debt consolidation. For instance, a debt management plan (DMP) may be a better fit. When in doubt, consider speaking with a certified credit counselor for guidance.
With debt consolidation, you’ll take out a new loan or line of credit, which also requires a hard pull on your credit report. A hard pull can impact your credit score for around a year, and opening a line of credit generally stays on your report for two years.
If you’re using your consolidation loan to pay off credit cards, you’ll experience a change in your credit utilization. Debt consolidation can impact your score positively or negatively (or both, but at different times in the process).
Because everyone’s situation is unique, there is no single best way to consolidate debt. Some find success with a debt consolidation loan, while others use a balance transfer credit card. Borrowers who aren’t afraid of taking some risks might even take out a 401(k) loan or home equity loan. Be sure to weigh all of your options before deciding what’s best for you.