When consolidating debts saves money, when it does not and how to avoid common traps.
What it is
Debt consolidation replaces several debts, often credit cards, with a single new loan. The goal is a lower rate, a simpler payment or both.
The potential benefits
If the new APR is far lower than your current average rate, you can save a lot. For example, $18,000 of card debt at 22% paid at $450 a month takes about 73 months and costs near $14,740 in interest. A 48-month loan at 11% costs about $465 a month and about $4,330 in interest.
The potential downsides
Origination fees, a longer term, or a higher rate than you assumed can erase the savings. The biggest risk is running up the cleared cards again.
Who benefits most
People with decent credit, a stable income and a plan to stop adding to their balances.
Alternatives to consider
A 0% balance transfer, a debt management plan through a reputable non-profit counsellor, or the avalanche method of paying the highest rate first.
Compare it
The debt consolidation calculator shows both paths side by side.
General information only, not financial, credit or legal advice. We do not offer or arrange loans. Rules and rates differ by country and lender.