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Is Debt Consolidation Right for You?


Debt consolidation can be a useful strategy for managing debt if you’re juggling multiple sources of debt, such as high-interest credit cards, personal loans, student loans, or medical bills. By combining several balances into a single loan or account, you may be able to lower your interest rate, reduce your monthly payments and simplify your financial life. But it’s not without trade-offs.

This guide explains how debt consolidation works, its pros and cons, and how to choose the right method based on your financial goals. We’ll also discuss which debts to include and which you may want to keep separate.


What Is Debt Consolidation?

Debt consolidation involves combining multiple debts into a single loan or line of credit. Instead of making multiple payments to different creditors, you make just one monthly payment to a new lender.

Consolidation doesn’t eliminate any debt. It restructures your debt, ideally under more favorable terms, such as a lower interest rate or a lower monthly payment.


Common Debt Consolidation Methods

There are several ways to consolidate debt. Here are some of the most popular options.


Balance Transfer Credit Cards

Balance transfer credit cards allow you to transfer existing credit card debt onto a new card. Often, these cards offer a 0% introductory APR for a limited time, like six to 18 months.1 While they’re primarily used for consolidating credit card debt, some lenders might allow you to consolidate other debts, such as personal, student, or auto loans.

This option works best if you have strong credit and you can pay off your balance before the promotional period ends. After the intro period, your outstanding balance is subject to the standard interest rates specified in your cardholder agreement.2 Plus, many cards charge a transfer fee of 3%–5%, which cuts into your potential savings.3


Debt Consolidation Loans

A debt consolidation loan is an unsecured personal loan you can use to pay off credit card balances, medical bills, or other unsecured debts. The repayment term is fixed, often ranging from six months to seven years.4

These loans are a good option if you have good credit and want predictable monthly payments and a lower interest rate than your current debts. However, interest rates can vary widely depending on your credit. Also, many personal loans have origination fees that range from 1% to 5% of the loan amount.5


Home Equity Loans or HELOCs

If you own a home, you may be able to tap into your home equity to pay off higher-interest debts. A home equity loan provides a lump sum, while a home equity line of credit (HELOC) offers a revolving credit line.

To qualify, you typically need at least 15% to 20% equity in your home, a credit score of 680 or above, and a debt-to-income ratio of 43% or less.6

However, using your home as collateral is risky. If you fall behind on payments, you could lose your home. Also, if you extend this low-interest debt over a long period — say, 10 to 30 years — it can increase total interest you pay.


Which Debts Should You Consolidate?

Before consolidating, consider the type of debts you want to consolidate, including the interest rates, terms and consumer protections involved.

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Credit card debt is a good candidate for consolidation because you may be able to pay off your debt faster with a lower-interest alternative.

Credit card debt is a good candidate for consolidation because it typically has high interest rates, allowing you to pay off your debt faster with a lower-interest-rate alternative.

Here are some things to think through before consolidating other types of debt.


Medical Bills

You may be able to consolidate medical bills with a balance transfer card, personal loan, or home equity loan. However, weigh the decision carefully.

Medical debts often have zero interest and flexible payment plans. Plus, the three major credit reporting bureaus, Equifax, Experian and TransUnion no longer include paid medical bills, medical debts less than one year old, and medical collections under $500 on consumer credit reports.7

Consolidating your medical debt could mean losing out on that consumer protection and potentially damaging your credit score if you run into financial trouble and can’t make payments.

Before consolidating medical debt, try negotiating directly with your healthcare provider or hospital billing office. They might be willing to reduce the balance, offer a discount for prompt payment, or set up an interest-free payment plan.8 You'll lose these options once you transfer the debt to a loan or credit card.


Student Loans

It’s generally not a good idea to consolidate federal student loans with private lenders, as you lose access to income-driven repayment plans, forbearance and forgiveness programs.9

Instead, consider a Direct Consolidation Loan through the U.S. Department of Education. This type of consolidation won’t lower your interest rate — your new loan has a fixed interest rate based on the average interest rates of the loans you consolidate — but it preserves federal benefits.10

On the other hand, private student loans don’t have the same protections as federal student loans, so they’re good candidates for consolidation if you can get a better interest rate.

Consolidating multiple student loans simplifies repayment by combining multiple loans into one, potentially locking in a fixed interest rate and extending your repayment term to lower your monthly payments.11


How to Decide If Debt Consolidation Is Right for You

Ask yourself these questions before consolidating:

  • Can I qualify for a better interest rate? While you might be able to qualify for some debt consolidation options with poor credit, a FICO score above 670 often unlocks more favorable rates.12

  • What are the fees? Compare balance transfer fees, loan origination fees, and closing costs. If saving money on interest is your goal, run the numbers using a debt consolidation calculator to ensure you’ll save money after factoring in fees.13

  • Can I stop accruing debt? Consolidation isn’t a fix for overspending. If you don’t address the root causes, you may end up deeper in debt. Consider trying a 30-day spending cleanse to curb impulse spending and build better habits alongside debt repayment.

Debt consolidation can help you save money and simplify your finances, but only if the math works in your favor and you're prepared to manage your finances more deliberately going forward. Also, check out our calculator to consolidate debt with a home equity loan. 

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Stefan Lembo Stolba, “Survey: Most Consumers Pay Back Balance Transfers During Promotional Period,” Experian. Published February 4, 2020. Accessed July 1, 2025. Back
  2. Tim Maxwell, “What Happens When Your 0% Introductory APR Ends,” Experian. Published November 23, 2023. Accessed July 1, 2025. Back
  3. Equifax, “What Is a Balance Transfer Credit Card and How Does It Work?” Accessed July 1, 2025. Back
  4. Jasmin Suknanan, “Thinking of consolidating your debt? Here are the pros and cons you need to know,” CNBC. Updated April 23, 2025. Accessed July 9, 2025. Back
  5. Angelica Leicht, “How much does credit card debt consolidation cost?” CBS News, published September 27, 2024. Accessed July 1, 2025. Back
  6. Kelsey Neubauer, “Should I pay off my credit card debt with a home equity loan?” CNBC, published March 30, 2025. Accessed June 16, 2025. Back
  7. CFPB, “Have medical debt? Anything already paid or under $500 should no longer be on your credit report,” published May 8, 2023. Accessed July 1, 2025. Back
  8. CFPB. "What should I do if I can't pay a medical bill?" updated December 7, 2023. Accessed June 13, 2025. Back
  9. U.S. Department of Education, “When it comes to paying for college, career school, or graduate school, federal student loans can offer several advantages over private student loans,” accessed July 9, 2025. Back
  10. U.S. Department of Education, “Direct Consolidation Loan Application,” accessed July 1, 2025. Back
  11. U.S. Department of Education, "Consolidating Student Loans," accessed June 13, 2025. Back
  12. Louis DeNicola, “What Is a Good Credit Score?” Experian, accessed July 1, 2025. Back
  13. AARP, “Debt Consolidation Calculator,” updated May 21, 2025. Accessed July 9, 2025. Back