Debt consolidation can be a good idea when you have a good credit score and are able to qualify for better rates and terms compared to what you are paying now. But if you need to work on your credit, if your situation is dire, or if you have too little debt, you may want to consider an alternative.

Debt consolidation allows you to roll multiple unsecured, high-interest debts, such as payday loans and credit cards, into a single monthly payment. Its main goal is to help you reorganize your debt into one simple monthly payment on a loan that offers a lower interest rate so that you can better manage to pay it off.

Debt consolidation is a common debt relief strategy. But does it work? Are debt consolidation loans a good idea? Read on to learn more about the pros and cons of debt consolidation and key considerations before you decide on this option.

Pros of Debt Consolidation Loans

Debt consolidation is often one of the most popular ways to get out of debt because it is most often easy to qualify for and straightforward to administer. Here are some of the benefits you may enjoy when you use this method to pay off your debt.

Lower Interest Rates

The standard annual percentage rate (APR) on the average variable-rate credit card in America, as of Q2 2024, is sitting at just under 21.0%. If you have a lot of credit cards with balances on each, you may find very quickly that you’re paying a considerable amount of money each month on interest charges, in addition to paying off the principal.    

As of Q2 2024, the average personal loan carries an average APR of just over 12.0%. The rate you qualify for will depend on your credit score, your loan’s repayment term length, your current debt-to-income ratio, and the loan amount you’re requesting, but you can typically be able to get a much lower rate on a debt consolidation loan than what you’re paying on your credit cards.

Simplified Payments

A debt consolidation loan will roll all your existing debts into a single payment on a fixed-rate personal loan with a fixed repayment term. This means you’ll no longer have to deal with multiple due dates for different lines of credit. You’ll also know exactly how much you need to pay each month so you can budget easily, from month to month. This will reduce the possibility of you missing payments.  

Lower Monthly Payments

Debt consolidation loans may also lower your monthly payments, especially if you have a longer repayment term. With a longer term, your debt payments will be much lower, so it can be beneficial if you’re currently finding it challenging to afford the monthly payments on your debts. Keep in mind that with a longer term, you might end up paying more interest charges over the life of the loan.  

Cons of Debt Consolidation Loans

While there are several benefits of taking out a debt consolidation loan to get out of credit card debt, there are a few potential downsides that you should be aware of.

Higher Overall Interest Costs

There are several reasons why you may end up paying higher interest costs (in terms of dollars paid) with a debt consolidation loan. If your credit score is lower, perhaps in the “fair” range or lower (<670), you’ll likely pay higher interest rates, in general, than a person with a “good” to “excellent” credit score. The loan term is another reason why you may pay more in interest. A longer loan term means a lower monthly payment, but you’ll pay more overall interest costs because it will take longer to pay off your loan, which means interest will be charged on your loan for a longer period of time. It’s important to weigh your long-term goals against your immediate needs to see if a debt consolidation loan may be a good idea for you.

Potential Impact on Credit Score

Debt consolidation can impact your credit in different ways. When you apply for a loan, the lender will usually run a “hard inquiry” on one or more of your credit reports to determine your creditworthiness, which can temporarily affect your credit score by a few points. When you take out a new loan, the average age of accounts may also be lowered, which may lower your credit score by a few points, as well. Again, this is usually temporary. 

If you continue to make timely payments on your loan after consolidating your debts, it may build your credit score back up again in as little as 3-6 months. Regardless of the type of loan, if you miss payments, your credit can take a significant hit.  

For example, if just one 30-day late payment shows up on the credit report, someone with an excellent credit score of 800+ can expect to see their score immediately drop by as much as 100 points in most cases.

Factors To Consider When Choosing a Debt Consolidation Loan

Now that you know the pros and cons of debt consolidation, here are a few things you should consider to ensure you choose the right lender and consolidation options.

Interest Rates

One of the most important things you need to consider before you take out a loan is the interest rate. Make a list of your current unsecured debts along with their interest rates. Check your credit report and prequalify to see what rates you can qualify for with a loan. 

Compare the loan offers from different issuers to see which one offers you the lowest rates. Debt consolidation only makes sense if the loan interest rates are much lower than the interest rates you’re currently paying.


Debt consolidation loans may also come with several other fees, such as origination fees, closing costs, late payment fees, and prepayment penalties. A loan’s annual percentage rate (APR) is a much more accurate and true reflection of the total loan cost. Therefore, you will want to compare the different APRs on the loans offered to you by different lenders and choose the one with the best APR and loan term for your needs.  It goes without saying you should be sure to check the fine print to see what fees you may be charged if you decide to take out the loan.

Repayment Terms

Another important factor to consider is the repayment term. The loan’s term is the amount of time you have to pay off the loan. Create a detailed budget to see how much you’ll be able to comfortably pay each month towards your loan. 

If affordable monthly payments are a priority, choose a loan with a longer term. If your goal is to pay the minimum possible amount towards interest charges, choose a shorter term. You may have to make bigger payments each month, but you’ll be able to pay off the loan much faster.

Alternatives to Debt Consolidation Loans

If borrowing a debt consolidation loan is not the right option for you, there are several other alternatives available to manage your debt.

Balance Transfer Credit Cards

Other than consolidation loans, you can use a balance transfer credit card to consolidate your debt. If you have an excellent credit history, you may qualify for balance transfer cards with 0% APRs. This means you’ll not have to pay any interest on your credit card balance during that introductory offer. If you manage to pay off your entire balance during that time, you won’t have to pay any additional interest after that unless you put any new charges on the card going forward.

0% balance transfer credit cards can be one of the best ways to pay off credit card debt and become debt-free, but only if you have a plan in place to clear your balance before the end of the promotional period. You should also know that you may have to pay a one-time balance transfer fee, which is typically 3%-5% of the total balance transferred, for the convenience of paying off your old creditor(s) and moving the balance(s) over.

Personal Loans

While many lenders offer loans specifically for debt consolidation, you can always opt for a regular personal loan. With a debt consolidation loan, your lender will typically disburse the loan funds directly to your lenders. With a personal loan, the funds will be disbursed to you, and you’ll then have to pay your lenders off yourself.

Personal loans can be used for any purpose, including debt consolidation. If you find a low-interest personal loan that offers you better terms than a debt consolidation loan, it may be a good option for you.

Who Are Debt Consolidation Loans Right For?

So, is debt consolidation a good idea for you? That depends on your financial situation. Here are a few scenarios to determine if it is the right solution for you:

  • You have a FICO score of at least 660. When you have good credit, you’ll be more likely to qualify for a loan at a lower interest rate, allowing you to save money.
  • You can afford to make the required (fixed) monthly payments, month after month until the loan is paid off. If you’re sure you’ll be able to pay the installment each month, you may benefit from debt consolidation. If you’re not sure about repayment, once you get a few months into your loan’s term, it will only make your situation worse.
  • You prefer a single monthly payment to one lender each month. Debt consolidation is a good option for those who don’t want to keep track of different due dates and multiple payments each month.
  • You prefer fixed loan payments each month. With a debt consolidation loan, you’ll have a fixed rate, fixed monthly payments, and a fixed loan term.

Get a Debt Consolidation Loan To Simplify Repayment

If you want to make your debt more manageable, debt consolidation can be an effective solution. However, it’s not always the right option for everyone, especially if you have bad credit or a large amount of debt. Research and compare it with other debt-relief options like debt settlement and debt management before you move forward.

If you have over $10k in debt and would like to explore other options to pay it off, get in touch with TurboDebt today. Sign up for our free consultation to see how we can help you find the right debt relief option for your individual needs.