Debt consolidation vs. paying debts separately
Last updated November 9, 2026
Debt consolidation means taking one new loan and using it to pay off several existing debts. You then make one payment instead of many. It can lower your cost, but only in certain situations. A worked example shows when.
The example
Suppose you have three credit cards that total $20,000:
| Card | Balance | APR | Payment |
|---|---|---|---|
| Card A | $9,000 | 24.99% | $270 |
| Card B | $6,500 | 21.99% | $195 |
| Card C | $4,500 | 27.99% | $135 |
Your average rate is about 24.7%, and you pay $600 a month in total. If you keep paying those amounts on each card, you are debt-free in about 66 months and pay roughly $14,450 in interest.
Option: a consolidation loan
Now suppose you qualify for a $20,000 five-year personal loan at 13% with a 4% origination fee. To net $20,000 you borrow $20,800.
| Plan | Payment | Time | Interest plus fee |
|---|---|---|---|
| Keep the three cards | $600 total | 66 months | about $14,450 |
| Consolidation loan, pay $600 | $600 | 44 months | about $6,220 |
| Consolidation loan, pay the required amount only | about $473 | 60 months | about $8,400 |
The loan wins in this example because the new rate is far below the card rates. Keeping the payment at $600 shortens the payoff and cuts the cost the most.
When consolidation helps
- The new loan's rate, including fees, is clearly lower than your current average rate.
- The loan has a fixed end date, which gives you a plan.
- You commit to not running the cards back up.
When it does not
- The new rate is close to what you pay now. Fees can wipe out the savings.
- The term is much longer. A lower payment over more years can cost more in total.
- The paid-off cards get used again. Then you have the loan and new card balances.
Check before you apply
Look at the full cost: the rate, any origination fee, the term and any prepayment penalty. Compare the total interest plus fees, not just the monthly payment. Then enter both plans in the planner to see the difference with your real numbers.
Run your own numbers
Enter your balances, rates and payments to see which debt to pay first and when you could be debt-free.
Related guides
- Is a balance transfer worth it?
- How to pay off $10,000 in credit card debt
- What APR means and how to use it
This article is for education only and is not financial, tax or legal advice. Examples use simplified monthly interest and assume on-time payments with no new borrowing. Your lender's or card issuer's terms control your actual costs.