Debt consolidation: when it helps

Debt consolidation can simplify repayment and reduce borrowing cost, but only when the new loan improves the complete payoff—not merely the first monthly payment.

Compare total cost

Include the new APR, term, origination fee, and any amount financed. A longer term may lower the payment while increasing the total interest paid.

Protect the payoff plan

Paying off cards with a consolidation loan creates available credit. New card balances can leave the borrower with both the consolidation loan and renewed revolving debt.

Understand collateral risk

Unsecured consolidation differs from using home equity. Securing consumer debt with a home may lower the rate while putting the property at risk if payments fail.

Consider alternatives

A debt avalanche, snowball, nonprofit credit counseling plan, or promotional balance transfer may fit better depending on rates, credit access, motivation, and fees.

Primary source

Consumer Financial Protection Bureau: consolidating credit card debt