When consolidation helps
A debt consolidation loan replaces several debts with one fixed-rate loan and one monthly payment. It saves money when the new rate, including any origination fee, is meaningfully lower than the rates you are paying now, which is often the case when moving high-interest card debt to a personal loan with good credit.
In the example, $15,000 of card debt at 22% paid at $450 a month takes about 4 years 4 months and costs roughly $8,400 in interest. A 48-month loan at 12% with a 3% fee costs about $4,500 in interest and fees.
Watch the term and the cards
A longer loan term lowers the payment but can raise total interest, so compare total cost, not just the monthly figure. Most importantly, avoid running the cards back up after paying them off with the loan; otherwise you end up with both the loan and new card balances.
A worked example
Take $15,000 of card debt at an average 22%, currently paid at $450 a month. At that pace it would take about 52 months to clear and cost about $8,390 in interest. A four-year consolidation loan at 12% has a payment of about $395 and costs about $3,960 in interest. Even after a 3% origination fee of $450, the total cost is around $4,410, roughly half, and the debt is gone a few months sooner.
The saving disappears if the rate gap is small, the fee is large or the new term is much longer than the time you would have needed anyway. It also depends on not using the cleared cards again. Some people close all but one card or leave them at home until the loan is paid off. If your credit is strong, a 0% balance transfer card may be cheaper still; the balance transfer calculator compares that option.
Common questions
How much can I save by consolidating $15,000 of credit card debt?
Moving $15,000 from 22% cards to a 12% four-year loan can cut total interest and fees from about $8,400 to about $4,400, if you avoid new card balances.
Is debt consolidation a good idea?
It can be if the new rate is lower and you stop adding new debt.
Does consolidation hurt my credit?
There is a small dip from the application, but lower card utilization and on-time payments usually help over time.
What fees should I look for?
Origination fees (often 1% to 10%), and any prepayment penalties.
This calculator gives estimates for planning. Real returns, rates and prices change, so treat the result as a guide rather than a promise. Read how we build and check our calculators.