What is debt consolidation?
Rolling several debts — credit cards, personal loans, store cards — into one new loan with a single monthly payment. Done well, it lowers your interest rate (a personal loan at 10% replacing cards at 22%), simplifies your finances, and gives a fixed payoff date. Done poorly, a longer term can lower the payment while quietly increasing the total you pay.
When does consolidation make sense?
When the new APR is meaningfully below the weighted average of your current debts, fees included, and the term is similar or shorter than your current payoff timeline. This calculator shows both totals side by side — if the consolidation card shows "costs more," the offer flatters your monthly budget at the expense of lifetime cost.
What fees should I watch for?
Origination fees of 1–8% are common on personal loans and are usually added to the balance or deducted from proceeds. Balance-transfer cards charge 3–5% upfront. Also check for prepayment penalties on existing debts. Enter the fee here so the comparison is honest — a 5% fee can erase the advantage of a modest rate improvement.
What is the biggest risk of consolidating?
Running the balances back up. Consolidation clears your credit cards but doesn't close them — a third of consolidators end up with the new loan AND fresh card debt. The math only works if spending stays controlled; consider lowering card limits after consolidating.
Will consolidating damage my credit score?
Typically a small dip first, then a recovery if the plan works. Applying creates a hard search and a new account, both of which lower the score briefly, and the average age of your accounts falls. Against that, paying several balances down to zero can sharply reduce credit utilisation, which is heavily weighted and often produces a net improvement within months. The lasting damage comes not from consolidating but from running the cleared cards back up, leaving both the old balances and the new loan.
How is consolidation different from debt settlement or a management plan?
Consolidation replaces several debts with one new loan and repays the original balances in full, so it is ordinary borrowing. A debt management plan leaves the debts in place while a third party negotiates reduced payments. Debt settlement seeks to have creditors accept less than the full amount, which can seriously damage credit for years and may create a taxable event on the forgiven balance. They are often marketed in similar language despite very different consequences, and the last two warrant advice from a non-profit debt charity first.