A debt consolidation loan can lower your interest costs and simplify repayment, but only if you consolidate the right debts at the right rate. Whether it's worth it depends on your APRs, repayment terms, and ability to stick to a budget.
June 2, 2026
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Personal loans are more popular than ever, with TransUnion reporting record-high originations in 2025 and total balances reaching $276 billion. Personal loans used for debt consolidation drive much of that demand. With average credit card APRs hovering around 21% compared to roughly 11.4% for personal loans, consolidating can lower interest costs and simplify repayment for the right borrower.
But will a debt consolidation loan actually help you get out of debt, or will it further dig you into it? Here’s a framework you can use to decide whether debt consolidation loans can help you achieve greater financial freedom.
Key insights
A debt consolidation loan is a personal loan used to pay off multiple existing debts, leaving you with a single fixed monthly payment at one interest rate. These loans are typically repaid over one to seven years and usually don’t require collateral.
You can apply for them through banks, credit unions, online lenders, or specialized personal loan providers. Most people use debt consolidation loans to consolidate credit card debt, but they can also help with other types of debt, like payday loans.
Debt consolidation generally saves you money if your new loan’s APR is lower than the APRs of the debts you’re consolidating, assuming you keep the same repayment length. That means you should avoid rolling lower-rate debt into a higher-rate loan.
For example, if your consolidation loan’s APR is 12%, and your debts include two credit cards at APRs of 24% and 15%, plus an auto loan at 7%, you’ll save the most by consolidating just the credit cards and leaving the auto loan alone.
Many people mistakenly average the APRs on all their debts and assume a consolidation loan is worthwhile if its rate is below that average. In reality, debts with lower interest rates than your new loan will generally save you more money in interest.
If your debt consolidation loan has a longer repayment term than the debt it's replacing, you might pay more in interest overall, but your monthly payment will be lower. If you’re struggling to pay your bills, a lower monthly payment can help.
Pro tip: A 40-point credit score improvement can shave 5 to 10 percentage points off your consolidation loan rate, especially if it pushes you past 700. That’s the threshold where lenders start offering their most competitive rates.
Annie Hanson, Accredited Financial Counselor and owner of Mindfully Money, recommends asking yourself these questions before taking out a personal loan for debt consolidation:
Josh Richner, founder of FaithWorks Financial, a national debt counseling agency, adds the following questions:
Richner notes that the biggest pitfall is skipping the last step. “People assume a loan is the solution without first exploring approaches that don't require adding new debt. A debt management plan, for example, can often reduce interest rates and payments without requiring a new loan.”
TransUnion data shows that credit card balances were cut to less than half after consolidation. But within 18 months, balances often crept back up to near pre-consolidation levels. Those who stay out of debt after consolidating usually:
"When you have a stable budget and an emergency fund, your chances of successfully paying off debt rise significantly," says Hanson. "It often feels wrong to put money in savings when you could be paying off debt, but doing so is the #1 thing you can do to prevent using debt when things happen."
Alexander Katsman, CEO and founder of Credit Booster, a professional credit repair company, recommends taking these additional steps to avoid temptation:
Some people even freeze their cards, literally, to remove the temptation to spend. "I have a client, a trucker from Chicago, who put his cards in a bag of water and stuck them in the freezer," says Katsman. "I know it sounds dumb, but it worked. Twenty minutes to thaw an ice block is enough time to think about what you're doing. He paid off his consolidation loan in 14 months. Sometimes simple beats smart."
Some people use other strategies other than a debt consolidation loan to manage debt, such as:
Some people use home equity loans or lines of credit (HELOCs) to consolidate debt, but this is riskier; if you default, you could lose your home. Experts generally recommend other options first.
Taking a few strategic steps before you apply can improve your chances of approval, help you qualify for a lower interest rate, and confirm that a debt consolidation loan is the best answer to tackling your debt. Here’s what Katsman recommends doing before you submit an application:
Debt consolidation has its pros and cons. While debt consolidation loans can help you pay off debt faster and save on interest, they aren’t right for everyone.
Whether it’s a good fit depends on your debt specifics, your credit profile, and how well you can stick to a budget. If you’re not sure, consider speaking with a nonprofit credit counselor to develop a personalized financial plan.
Lorraine Roberte is a trusted debt and mortgage expert for Besmoney.com. As the CEO and Founder of Crafty Writing, she specializes in personal finance and insurance content. She has written for leading publications like AAA, GoodRx, Investopedia, PNC Bank, CNN Underscored, Bankrate, and many more. She does the hard work of breaking down complex financial topics like loans, mortgages, debt, and insurance coverage to help readers make confident decisions.
