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Debt consolidation

One payment can be simpler. It is not automatically cheaper.

Consolidation can replace several balances with one installment loan. Compare total cost—not only the new monthly payment.

How debt consolidation works

A consolidation loan is used to pay multiple existing debts. You then repay the new loan according to its rate and term. This can simplify payment management and may reduce interest, but savings depend on the complete terms.

Three numbers to compare

1. Annual percentage rate

Compare the new loan's APR with the effective rates on the debts being repaid. Include any origination fee.

2. Monthly payment

A lower payment may improve cash flow, but it can result from stretching repayment over more years.

3. Total repayment

Calculate all scheduled payments and fees. A lower monthly payment can still cost more in total.

Important: Paying off cards does not close them automatically. Running the balances up again can leave you with both the consolidation loan and new card debt.

When consolidation may make sense

  • The new APR and total cost are meaningfully lower.
  • The payment fits comfortably within your budget.
  • You have a plan to avoid new revolving balances.
  • The repayment schedule provides a clear payoff date.

Alternatives to consider

Depending on the circumstances, alternatives may include a nonprofit debt-management plan, creditor hardship arrangements, a balance-transfer offer, direct repayment strategies, or professional financial counseling. Each has different costs and risks.