Does debt consolidation save money?
Debt consolidation means taking one new loan to pay off several debts, such as credit cards, so you have one payment and ideally a lower rate. The calculator compares two paths: keep paying your current debts with your current monthly payment, or take a consolidation loan at a new APR and term. It shows the monthly payment, payoff time and total interest for each, including the loan's origination fee.
A lower monthly payment is not the same as saving money. A longer term can lower the payment but raise the total interest, so look at the total cost line.
Ways to consolidate debt
- Personal loan – a fixed rate and a fixed payoff date, usually 2 to 7 years.
- Balance transfer card – 0% intro APR for a limited time, often 12 to 21 months, with a transfer fee of about 3% to 5%. Best if you can pay the balance before the promotion ends.
- Home equity loan or HELOC – lower rates, but your home becomes the collateral.
- Nonprofit debt management plan – a credit counseling agency may negotiate lower rates and combine payments.
Frequently asked questions
Does debt consolidation hurt my credit?
Applying causes a small, temporary dip. Paying off cards can lower your utilization and help your score, as long as you don't run the balances back up.
What APR do I need for consolidation to make sense?
The new APR, including fees, should be clearly below the average rate on your current debts, and the term shouldn't be so long that total interest goes up.
Is debt consolidation the same as debt settlement?
No. Consolidation repays everything you owe with a new loan. Debt settlement tries to pay less than you owe, which can seriously damage your credit and may be taxable.