Before you take out a consolidation loan, run the real math. Most people discover they'd save money — but some find consolidation makes their situation worse. Here's how to tell the difference.
Enter your debts below to see exactly whether consolidation saves you money — or costs you more in the long run.
Debt consolidation replaces multiple debts with a single loan. Whether it saves money depends on three variables working in your favor simultaneously:
| Debt | Balance | APR | Min Payment | Months to Pay Off | Total Interest |
|---|---|---|---|---|---|
| Card A | $5,000 | 22% | $150 | 47 months | $2,055 |
| Card B | $3,000 | 26% | $90 | Never (min < interest) | ∞ |
| Personal Loan | $8,000 | 18% | $220 | 58 months | $4,752 |
| Weighted Avg APR | 20.5% | ||||
A consolidation loan at 14% APR / 48 months would: payment = $440/month, total interest = $5,120, savings vs. current path ≈ $3,200+
Your weighted average interest rate tells you the "true cost" of your current debt mix. Here's how to calculate it manually:
Weighted APR = (Balance₁ × APR₁ + Balance₂ × APR₂ + ...) ÷ Total BalanceAny consolidation loan with an APR below 20.75% saves money on interest — assuming the same or shorter repayment term.
| Credit Score | Expected Consolidation APR | Worth Consolidating? | Best Option |
|---|---|---|---|
| 760+ | 7–13% | ✅ Yes — significant savings | LightStream, SoFi, Marcus |
| 720–759 | 12–17% | ✅ Usually yes | SoFi, Discover, Upstart |
| 680–719 | 16–22% | ⚠️ Borderline — run the numbers | Upstart, Avant, credit unions |
| 640–679 | 20–28% | ⚠️ Unlikely to save money | DMP may be better |
| Below 640 | 25–36%+ | ❌ Rarely worthwhile | Credit counseling, DMP |
This is where most people get surprised. A lower interest rate doesn't automatically mean you pay less total — if the term is much longer.
| Scenario | Balance | APR | Term | Monthly Payment | Total Interest |
|---|---|---|---|---|---|
| Aggressive payoff | $15,000 | 22% | 24 months | $770 | $3,480 |
| Consolidation (good) | $15,000 | 13% | 36 months | $505 | $3,180 |
| Consolidation (trap) | $15,000 | 14% | 84 months | $268 | $7,512 |
| DMP (nonprofit) | $15,000 | 6–8% | 60 months | $290 | $2,400 |
Most personal loans charge an origination fee of 1–8% of the loan amount. This fee is typically deducted from your loan proceeds or added to your balance upfront.
| Loan Amount | Fee (3%) | Fee (5%) | Fee (8%) | Months to Break Even* |
|---|---|---|---|---|
| $10,000 | $300 | $500 | $800 | 2–6 months |
| $20,000 | $600 | $1,000 | $1,600 | 3–8 months |
| $40,000 | $1,200 | $2,000 | $3,200 | 4–12 months |
*Break-even months to recoup the fee through interest savings, compared to your current debt.
Lenders with no origination fees: LightStream, SoFi (sometimes), Marcus by Goldman Sachs, most credit unions.
| Option | Best For | Cost | Credit Impact |
|---|---|---|---|
| Debt Management Plan (DMP) | High-rate credit card debt, any credit score | $25–$79/month admin fee | Neutral (accounts noted "enrolled in DMP") |
| Balance Transfer Card (0%) | Good credit, under $20K, disciplined payoff | 3–5% transfer fee, then 0% for 15–21 months | Small temporary dip |
| Debt Settlement | Severe hardship, significant delinquency | 15–25% of enrolled debt | Severe negative impact |
| Credit Union Loan | Members with established relationship | Often lower fees + APR than banks | Same as personal loan |
| Home Equity Loan (HELOC) | Homeowners with equity, large debt | Closing costs 2–5% | Minimal — but home at risk |
If a debt collector is pressuring you, your first move is a validation letter. Our free generator creates a FDCPA-compliant letter instantly.
Generate Free Letter →Compare your current weighted average interest rate across all debts to the consolidation loan rate. If the new rate is lower AND the term is shorter or equal, consolidation saves money. Also factor in origination fees (1–8% of loan amount) which can erase months of interest savings.
A debt consolidation loan is worth pursuing if the rate is below your weighted average current rate. For credit card debt (avg 22–27% APR), anything under 18% is beneficial. With good credit (700+), expect 10–15%. With fair credit (640–699), expect 16–22%. Below 640, consolidation loans rarely save money.
Debt consolidation causes a temporary 5–10 point dip from the hard credit inquiry, but typically improves your score within 3–6 months because it lowers your credit utilization ratio. Keep old credit card accounts open after consolidating to maintain available credit.
Yes, but your options are limited. Below 640, personal loan rates often exceed 25–30% APR — which doesn't save money vs. credit cards. Better options for bad credit: Debt Management Plans (nonprofit, no credit check), negotiating directly with creditors, or credit union personal loans if you're a member.
A consolidation loan is new debt that pays off your old debts — you get the loan, pay off accounts yourself, then repay the loan. A Debt Management Plan (DMP) is a repayment program managed by a nonprofit credit counselor — they negotiate reduced rates with your creditors, you make one monthly payment to them. DMPs require no credit check and often get rates lower than any loan you could qualify for.