The average American household carries debt balances across multiple accounts, each with its own rate and minimum payment. Consolidation rolls those into a single loan, often at a lower rate. But a lower rate does not automatically mean you’ll pay less.
Below, we break down the debt consolidation pros and cons so you know when it works in your favor and when it doesn’t.
The pros of debt consolidation
When it’s a good fit, debt consolidation can meaningfully improve both the financial picture and the day-to-day experience of managing debt.
Save money on interest
A debt consolidation loan can also combine several lines of debt into one simple monthly payment, reducing both the interest you pay and the mental load of managing multiple bills.
For example, say you’re carrying $25,000 across three cards at interest rates between 20% and 27%. By consolidating into a single loan at 14%, you could save over $2,000 in interest and pay off your debt months sooner.
Potential to pay off debt faster
A lower interest rate means more of each payment goes toward the principal balance rather than interest charges.
For example, putting $500 a month toward $15,000 in credit card debt at 24% takes more than four years to pay off. Drop that rate to 14% through a debt consolidation loan and you could cut almost a year off that timeline. Use a debt payoff calculator to see what the numbers look like for your situation.
Simplified, more manageable payments
Instead of tracking five different due dates, minimum amounts and interest rates, you have a single bill. It’s a meaningful simplification given that nearly 3% of all credit card balances are currently past due by 30 days or more, according to the Federal Reserve.
Consolidation also lets you choose repayment terms that better fit your budget, whether a shorter term to pay off debt faster or a longer one to lower your monthly payment, each with its own tradeoffs we’ll cover below.
The cons of debt consolidation
There are also disadvantages of debt consolidation, particularly if you go in without a clear plan or aren’t a strong candidate for it. Understanding the full picture of risk factors and alternatives can help you determine whether it’s the right path for your situation.
Lower payments don’t always mean lower costs
A longer repayment term reduces your monthly bill but can increase the total interest you pay, so it is worth it mainly if your goal is manageable payments rather than minimizing cost.
If you want out of debt as fast and cheaply as possible, a shorter term wins. Either way, always compare total cost, not just the monthly payment.
It’s a tool, not a fix
Consolidation addresses the structure of your debt, not the habits that contributed to it. If spending patterns don’t change, it’s possible to accumulate new balances on the cards you’ve just paid off, leaving you in a worse position than before.
Not everyone qualifies for a lower rate
Consolidation tends to work best for borrowers carrying multiple high-interest unsecured debts with a stable income and a credit score strong enough to qualify for a meaningfully lower rate. If you’re not quite there yet, improving your credit score before you apply can make a meaningful difference in the rate you’re offered.
If consolidation isn’t the right fit, there are other debt relief options worth considering.
Explore your debt relief options with Accredited Debt Relief
Debt consolidation can be a powerful tool for simplifying repayment and reducing what you pay in interest. Take the time to run the numbers, look at your credit, your current rates and what you can realistically afford each month, before committing to anything.
Accredited Debt Relief offers free consultations with Consolidation Specialists who can walk through your specific situation, explain the types of debt consolidation available to you and help you decide without obligation.
Debt consolidation FAQ
Is debt consolidation a good idea if I have bad credit?
Debt consolidation options like loans are available with bad credit, but the math has to work in your favor. Borrowers with lower credit scores may not qualify for interest rates low enough to make a consolidation loan financially worthwhile. If that’s the case, a debt relief program may be a better fit.
What are the biggest risks of debt consolidation?
The two most common risks of debt consolidation are extending your repayment timeline, which increases total interest paid, and accumulating new debt on the accounts you’ve paid off.
How does debt consolidation work?
Debt consolidation works by combining multiple debts into a single loan or payment, ideally at a lower interest rate than what you’re currently paying. Instead of managing several balances across different accounts, you make one monthly payment to one lender.
The information on this site is provided as a general resource and does not constitute legal, tax, or financial advice. While Accredited Debt Relief makes every effort to ensure accuracy, this content, including any third-party sources referenced, should not be the basis for any financial decision. For guidance specific to your situation, we recommend consulting a qualified professional.