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Debt

Debt consolidation

Debt consolidation means rolling several debts into one new loan or credit account so you make a single payment. It can simplify repayment, but the total cost depends on the new rate, fees, and repayment term, and the debt itself remains.

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How it works

Consolidation can take several forms: a consolidation loan from a bank, credit union, or other lender; a balance transfer that moves card debts onto one card; or a home equity loan that borrows against your home. In each case the old creditors are paid off, and you are left with one new debt that has its own rate, fees, and schedule.

A lower monthly payment is not the same as a lower cost. The payment may drop mainly because repayment stretches over more months, which can mean paying more in total once interest and fees are counted. Adding up every scheduled payment plus upfront fees, and comparing that with the cost of repaying the current debts on their existing terms, shows whether the new arrangement actually saves money.

Some risks sit outside the rate. A home equity loan uses your home as security, so falling behind could lead to foreclosure. Cards that were paid off can stay open, so new balances may build alongside the new loan. A nonprofit credit counselor may be able to help compare options before you take on a new obligation.

Try it with your own numbersLoan Payment CalculatorFree loan payment calculator for fixed-rate car, personal and consolidation loans. See the monthly payment, total interest and how the term changes both.

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Sources and further reading

Examples are illustrative and focus on U.S. personal finance. This page is educational, not individual financial, investment, tax, or legal advice. Read our editorial approach or report a correction.

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