Debt consolidation combines multiple debts into a single payment, ideally at a lower interest rate. But is it the right move for your situation? Let's break it down.
What Is Debt Consolidation?
Debt consolidation is the process of taking out a new loan or credit line to pay off multiple existing debts. Instead of juggling several payments with different interest rates and due dates, you make one payment each month.
Types of Debt Consolidation
Personal Consolidation Loan
An unsecured loan from a bank, credit union, or online lender. Rates typically range from 6–36% depending on your credit score. Best for those with good credit who want a fixed payment schedule.
Balance Transfer Credit Card
Transfer high-interest credit card balances to a new card with a 0% introductory APR (typically 12–21 months). Best for smaller amounts you can pay off during the intro period.
Home Equity Loan or HELOC
Borrow against your home equity at lower rates (typically 7–12%). Best for homeowners with significant equity. See our homeowner solutions guide for more details.
Debt Management Plan
Work with a nonprofit credit counseling agency to consolidate payments and potentially reduce interest rates. Not a loan — the agency negotiates directly with creditors.
Consolidation vs. Settlement
It's important to understand the difference: consolidation combines debts into one payment (you still pay the full amount), while settlement negotiates to reduce the total amount owed. Settlement has a bigger credit impact but can save more money for those who are significantly behind.
Is Consolidation Right for You?
Consolidation works best when you can get a lower interest rate than your current debts, you have a steady income to make payments, you're committed to not taking on new debt, and your total debt is manageable relative to your income.
Not sure which option is best for you?