Financing a home purchase
Refinancing your existing loan
Finding the right lender
Additional Resources
Looking for a financial advisor?
Take our 3 minute quiz and match with an advisor today.
Compare Accounts
Use calculators
Get advice
Bank reviews
Looking for a financial advisor?
Take our 3 minute quiz and match with an advisor today.
Compare by category
Compare by credit needed
Compare by issuer
Get advice
Looking for the perfect credit card?
Narrow your search with CardMatch™
Personal Loans
Student Loans
Auto Loans
Loan calculators
Looking for a financial advisor?
Take our 3 minute quiz and match with an advisor today.
Best of
Brokerages and robo-advisors
Learn the basics
Additional resources
Looking for a financial advisor?
Take our 3 minute quiz and match with an advisor today.
Get the best rates
Lender reviews
Use calculators
Knowledge base
Looking for a financial advisor?
Take our 3 minute quiz and match with an advisor today.
Selling a home
Buying a home
Finding the right agent
Additional resources
Looking for a financial advisor?
Take our 3 minute quiz and match with an advisor today.
Compare car insurance rates
Homeowners insurance
Other insurance
Company reviews
Looking for a financial advisor?
Take our 3 minute quiz and match with an advisor today.
Retirement plans & accounts
Learn the basics
Retirement calculators
Additional resources
Looking for a financial advisor?
Take our 3 minute quiz and match with an advisor today.
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free – so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for .
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information.
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.
Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.
American consumer debt — including mortgages, car loans, credit cards and student loans — reached $16.51 trillion in the third quarter of 2022, according to the New York Federal Reserve. This is an increase of 2.2 percent, or $351 billion, from the second quarter of 2022, prompting many Americans to explore other strategies to manage their growing debt loads.
Some options for overcoming debt include working with creditors to settle the debt, using a home equity line of credit or getting a debt consolidation loan. Debt consolidation is the process of combining several debts into one new loan, sometimes with a lower interest rate.
Although it sounds like an ideal solution, there are both pros and cons associated with debt consolidation. It could simplify your finances and help you get out of debt faster, but the upfront costs may be steep.
Debt consolidation is combining two or more debts into a single larger debt. Consumers often take this step with a significant amount of high-interest debt.
“It’s often used to combine credit card debts, auto loans, student loans, medical debt or other types of loans into a new loan,” says Katie Ross, executive vice president of the nonprofit American Consumer Credit Counseling. “Then the borrower only has to pay one monthly payment instead of a separate payment for each debt.”
In addition to simplifying your finances, debt consolidation ideally gives the borrower more favorable loan terms, such as a more competitive interest rate.
Debt consolidation is often the best way to get out of debt. Here are some of the main benefits that may apply.
Taking out a debt consolidation loan may help put you on a faster track to total payoff, especially if you have significant credit card debt. Credit cards don’t have a set timeline for paying off a balance, but a consolidation loan has fixed monthly payments with a clear beginning and end to the loan.
Takeaway: Repaying your debt faster means you may pay less interest overall. In addition, the quicker your debt is paid off, the sooner you can start putting more money toward other goals, such as an emergency or retirement fund.
When you consolidate all your debt, you no longer have to worry about multiple due dates each month because you only have one payment. Furthermore, the payment is the same each month, so you know exactly how much money to set aside.
Takeaway: Because you use the loan funds to pay off other debts, debt consolidation can turn two or three payments into a single payment. This can simplify budgeting and create fewer opportunities to miss payments.
As of January 2023, the average credit card rate is around 19.6 percent. Meanwhile, the average personal loan rate is a little over 10.6 percent. Of course, rates vary depending on your credit score, loan amount, and term length, but you’re likely to get a lower interest rate with a debt consolidation loan than what you’re currently paying on your credit card.
Takeaway: Debt consolidation loans for consumers with good to excellent credit typically have significantly lower interest rates than the average credit card.
If you use a personal loan to pay off your debt, you’ll know exactly how much is due each month and when your last payment will be. If you pay only the minimum with a high interest credit card, it could be years before you pay it in full.
Takeaway: With a fixed repayment schedule, your payment and interest rate remain the same for the length of the loan, and there’s no unexpected fluctuation in your monthly debt payment.
While a debt consolidation loan may initially lower your credit score slightly since you’ll have to go through a hard credit inquiry, over time it will likely improve your score. That’s because it’ll be easier to make on-time payments. Your payment history accounts for 35 percent of your credit score, so paying a single monthly bill when it’s due should significantly raise your score.
Additionally, if any of your old debt was from credit cards and you keep your cards open, you’ll have both a better credit utilization ratio and a stronger history with credit. Amounts owed account for 30 percent of your credit score, while the length of your credit history accounts for 15 percent. These two categories could lower your score should you close your cards after paying them off. Keep them open to help your credit score.
Takeaway: Consolidating debt can improve your credit score compared to not consolidating. This is particularly true if you make your loan payments on time, as payment history is the most important factor in calculating your score.
There are also some downsides to debt consolidation that you should consider before taking out a loan.
Consolidating debt does not guarantee that you won’t go into debt again. If you have a history of living beyond your means, you might do so again once you feel free of debt. To help avoid this, make yourself a realistic budget and stick to it. You should also start building an emergency fund that can be used to pay for financial surprises so you don’t have to rely on credit cards.
Takeaway: Consolidation can help you pay debt off, but it will not eliminate the financial habits that got you into trouble in the first place, such as overspending or failing to set aside money for emergencies. You can prevent more debt from accumulating by laying the groundwork for better financial behavior.
Some debt consolidation loans come with fees. These may include:
Before taking out a debt consolidation loan, ask about any fees, including making late payments or paying your loan off early. Depending on your lender, these fees could be hundreds if not thousands of dollars. While paying these fees may still be worth it, you’ll want to include them in deciding if debt consolidation makes sense for you.
Takeaway: Do your research and read the fine print carefully when considering debt consolidation loans to make sure you understand their full costs.
Your debt consolidation loan could come at a higher rate than what you currently pay on your debts. This can happen for a variety of reasons, including your current credit score. If it’s on the lower end, the risk of default is higher and you’ll likely pay more for credit.
Additional reasons you might pay more in interest include the loan amount and the loan term. Extending your loan term could lower your monthly payment, but you may end up paying more interest in the long run.
As you consider debt consolidation, weigh your immediate needs with your long-term goals to find the best solution.
Takeaway: Consolidation does not always reduce the interest rate on your debt, particularly if your credit score is less than ideal.
If you miss one of your monthly loan payments, you’ll likely have to pay a late payment fee. In addition, if a payment is returned due to insufficient funds, some lenders will charge you a returned payment fee. These fees can greatly increase your borrowing costs.
Also, since lenders typically report a late payment to the credit bureaus after it becomes 30 days past due, your credit score can suffer serious damage. This can make it harder for you to qualify for future loans and get the best interest rate.
Enroll in the lender’s automatic payment program if it has one to reduce your chances of missing a payment.
Takeaway: Make sure you can afford the monthly payments before you take out a debt consolidation loan. Missing a payment can lead to late fees and a lower credit score.
The answer to this question depends on your circumstances. That said, here are some scenarios where you might be a good candidate:
If you believe taking out a debt consolidation loan is the best option, take the following steps to get one:
While debt consolidation can be an attractive option, remember there are both benefits and drawbacks. It’s possible to streamline your monthly debt payments into a single payment, lower your interest rate, improve your credit health and pay pesky revolving balances off faster. Still, you may also have to pay fees for a consolidation loan, and there is no guarantee that you’ll get a lower rate than you currently have.
Debt consolidation can feel like immediate relief, but it may not resolve the problem if issues such as overspending remain unaddressed. You can also use a debt consolidation calculator to determine if taking out a loan makes financial sense for your situation.
Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear. Bankrate.com does not include all companies or all available products.
Bankrate, LLC NMLS ID# 1427381 | NMLS Consumer Access
BR Tech Services, Inc. NMLS ID #1743443 | NMLS Consumer Access
© 2023 Bankrate, LLC. A Red Ventures company. All Rights Reserved.
