Pros and cons of debt consolidation: Is it a good idea?

Debt consolidation involves combining several debts — such as credit cards, personal loans or medical bills — into a single loan with one monthly payment. This can simplify your finances and potentially lower your interest rate, depending on the loan terms and your credit profile.

Pros and cons of debt consolidation

You can consolidate nearly every type of consumer debt. However, debt consolidation loans aren’t a complete fix. You must still pay them off.

That said, consider these pros and cons to see if consolidation is right for your finances.

Benefits of debt consolidation

Debt consolidation is often the best way to organize your current debt and simplify repayment. Consolidation, if used correctly, offers benefits that could save you money.

Faster debt repayment

Taking out a debt consolidation loan can help put you on a faster track to total payoff and may help you save money on interest by paying down the balance faster. This is especially true if you have significant credit card debt you carry from month to month.

Lower interest rates

As of September 2025, the average credit card rate is 20.12 percent. Meanwhile, the average personal loan rate is 12.37 percent.

Of course, rates vary depending on your credit score, and the loan amount and term length. But if you have average credit or better, you’ll likely get a lower interest rate with a debt consolidation loan than what you’re currently paying on your credit card.

Those with excellent credit often get the lender’s lowest rates. These can be under 7 percent, depending on the lender.

Simplified finances

Instead of juggling multiple monthly payments, you’ll only need to remember one payment date each month. This can reduce stress and prevent missed payments.

Fixed repayment schedule

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. Since most personal loan rates are fixed, you’ll know exactly how much is due each month and when your last payment will be.

On the other hand, if you pay only the minimum with a high-interest credit card, it could be years before you pay it in full.

Credit boost

Paying off multiple debts with a single consolidation loan can positively impact your credit score, especially if you make timely payments. If you use the loan to pay off revolving debt and keep it paid off, your credit utilization ratio will also improve, which can boost your credit scores.

Drawbacks of debt consolidation

While debt consolidation can be helpful, it’s not without its risks. You’ll need to keep on top of your finances and prevent yourself from winding up in the same spot again later.

It won’t solve financial problems on its own

Consolidating debt doesn’t guarantee you won’t go into debt again and won’t eliminate your current debt or underlying financial habits.

“Many people come to me after they’ve done debt consolidation and run into more debt because they didn’t solve the root cause,” says Bernadette Joy, Bankrate expert contributor and founder of Crush Your Money Goals. As part of her CRUSH debt repayment method, Joy recommends healing money wounds by asking yourself what will change once your debt is clear.

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, track your spending and make yourself a realistic budget that you are confident you can stick to. Evaluate where you’re spending every month and adjust accordingly to keep yourself on track.

You should also start building an emergency fund that can be used to pay for financial surprises. With an emergency fund, you don’t have to rely on credit cards.

There may be upfront costs

Some debt consolidation loans come with fees. These may include:

• Annual fees.
• Balance transfer fees.
• Closing costs.
• Loan origination fees.

Before taking out a debt consolidation loan, ask about any fees, including ones for 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.

You may pay a higher rate

Your debt consolidation loan could come with more interest than you currently pay on your debts. This can happen for several reasons, including your current credit score. If it’s on the lower end, lenders see you as a higher risk of default. You’ll likely pay more for credit and be able to borrow less.

Beware of extending your loan term, too. Extending your loan term could lower your monthly payment, but you may pay 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 or consider debt consolidation alternatives.

Missing payments will set you back even further

If you miss one of your monthly loan payments, you’ll likely have to pay a late payment fee. Some lenders will also charge you a returned payment fee if a payment is returned due to insufficient funds. These fees can greatly increase your borrowing costs.

Lenders typically report a late payment to the credit bureaus, which means 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.

Is debt consolidation a good idea?

Debt consolidation is a good idea if it helps you meet your financial goals, but not if you use it to free up revolving credit or refuse to change how you spend and manage your money.

“Make sure you’re not just moving the debt around without changing your habits,” Joy says. “If it helps you stick to your plan and reduces stress, great, but don’t use it as an excuse to keep overspending.”

If you’re still unsure whether debt consolidation is a good idea, consider this guidance:

Debt consolidation is a good idea if:

• You have good credit and want to streamline your debt payments.
• You are able to secure more favorable terms, including a lower interest rate.
• You’re able to afford the monthly payment.
• You recognized and are working on fixing bad money habits, like overspending.
• You have a plan to pay off debt and avoid it in the future.

Debt consolidation is a bad idea if:

• You have bad credit and may not qualify for the loan.
• The debt consolidation loan has worse terms than your current debt.
• You’re only using the loan to free up revolving credit.
• You don’t have a budget or know how to control your spending.
• You have trouble managing debt and are consistently late with payments.

Bankrate tip

Consider using a debt consolidation calculator to determine if consolidating is right for you.

If debt consolidation is a bad idea at this time, that doesn’t mean it will always be. There are several ways to improve your finances and money habits to put yourself in a better position to consolidate your debt in the future.

A financial counselor can review your budget and spending, and may help you get to the root cause of your money issues. As you build a stronger financial foundation, you can also work on increasing your credit score so, when you do apply for a consolidation loan, you can qualify for better interest rates and terms.

It can also help to consider other options you may have, including other debt repayment strategies and debt relief services.

Alternatives to debt consolidation

If debt consolidation isn’t right for you, consider alternatives.

• Debt management plans: Work with a credit counselor to set up a structured repayment plan.
• Debt settlement: Negotiate with creditors to pay a reduced amount. You can do this on your own or hire a debt relief company to help.
• Balance transfer credit cards: Transfer high-interest debt to a card with a 0 percent introductory APR.
• Snowball or avalanche methods: Pay off debts from smallest to largest (snowball) or highest interest to lowest (avalanche).

Bottom line

Debt consolidation can be a powerful tool for paying off debt faster and potentially saving on interest. Before you apply, it’s important to weigh the costs, consider your credit score and explore all available options to make the decision that’s best for your financial situation.