What Is Debt Consolidation, and Should I Consolidate?

Debt consolidation rolls multiple debts — typically high-interest debt, like credit cards — into a single payment. It's an especially good idea if you can get a lower interest rate than what you're currently paying.

If you’re dealing with a manageable amount of debt and want to simplify repayments and potentially pay off debt faster, then debt consolidation is a sound approach you can tackle on your own.

How to consolidate debt

There are two main ways to consolidate debt, both of which combine your debt payments into one bill. The best option for you depends on your credit score and what type of debt you have.

Get a 0% interest balance transfer credit card

With a 0% balance transfer credit card, you move your existing credit card balances onto the new card. You then pay off that card with zero interest during the promotional period, which can last 15 to 21 months.

The interest-free period allows you to focus on paying off the core debt. You can even apply the savings in interest back to the core debt, which will shorten the payoff period. You’ll need good or excellent credit (any score in the mid-600s or higher) to qualify.

» MORE: NerdWallet’s picks for the best balance transfer cards

Take out a fixed-rate debt consolidation loan

With a debt consolidation loan, you use the money from the loan to pay off unsecured debts. You then pay back the loan in installments over a set term, usually one to seven years.

Debt consolidation loans have fixed interest rates, so you’ll pay the same amount each month. This makes debt repayment easier to budget for.

You can get a debt consolidation loan with bad credit (a score in the high 500s or lower). But borrowers with higher scores will likely qualify for the lowest rates.

» MORE: NerdWallet’s picks for the best debt consolidation loans

Compare balance transfer cards and debt consolidation loans

» MORE: Balance transfer card vs. debt consolidation loan

When to consider debt consolidation

Success with a consolidation strategy requires the following:

• Your monthly debt payments don’t exceed 50% of your monthly gross income.

• You can qualify for either a 0% balance transfer card or a debt consolidation loan with a lower interest rate than your existing debts.

• You can commit to regular payments toward your debt.

• If you choose a balance transfer card, you can pay it off during the promotional period. 

• If you choose a consolidation loan, you can pay it off within one to seven years.

Benefits of debt consolidation

You’ll save time and money: If you combine your debts under a lower interest rate, less of your money goes toward interest. That means you’re actually tackling the principal debt. This helps you get out of debt faster, especially if you apply any savings in interest back to the root debt.

You’ll no longer have a bunch of individual debts: Are you overwhelmed by many different due dates, interest rates and minimum payments? Consolidation solves that problem. Whether you choose a balance transfer card or a consolidation loan, you have only one debt to manage.

You’ll have a clear finish line: Consolidation reveals a light at the end of the tunnel. If you take out a debt consolidation loan with a three-year term, you know your debt will be repaid in three years. Conversely, making minimum payments on credit cards could mean months or years before they’re paid off.

Risks of debt consolidation

You’ll need to keep up with payments: Consolidating debt doesn’t make it go away — it moves it somewhere else. You'll still need to make regular payments on your debt to pay it off on time and avoid late fees.

You could go further into debt: Consolidation frees up your credit cards, so it may be tempting to run up new balances. This will only increase your debt and leave you worse off than before. You’ll have to be diligent about not overspending and keeping debt manageable.

Debt consolidation calculator

Here’s an example of when consolidation makes sense. Say you have two or three credit cards with interest rates ranging from 23% to 25%, and your credit is good. You might qualify for an unsecured debt consolidation loan at 15%. With less interest accruing each month, you'll make quicker progress toward being debt-free.

Use the calculator below to plug in your debts and what savings you may qualify for.

Does debt consolidation affect your credit?

Debt consolidation can affect your credit score in a few ways.

When you apply for a balance transfer card or a consolidation loan, you'll undergo a hard credit pull. This knocks a few points off your credit score and is normal.

Missing payments, like on a debt consolidation loan, could hurt your score. The same is true of running up your credit card balances again or closing your credit cards.

But if you avoid these behaviors and pay off your debt in full, consolidation should help your credit.

» MORE: Does debt consolidation hurt your credit?

Can you consolidate debt if you have bad credit?

You can consolidate debt if you have bad credit, though your options may be more limited.

Debt consolidation loans are available to borrowers with bad credit. Credit unions and online lenders may lend to borrowers with lower credit scores.

» COMPARE: Best debt consolidation loans for bad credit

You can also explore other debt payoff methods that don't rely on credit. This includes credit counseling or strategies like the debt snowball or avalanche methods. Keep reading to learn more about these options.

When debt consolidation isn't worth it

Consolidation isn’t the only way to get out of debt. If you can’t qualify for a low enough interest rate, there are other smart payoff strategies.

Use the debt snowball or debt avalanche method

If your debt feels manageable, and you’d save only a small amount by consolidating, don’t bother. You can likely pay it off yourself with the debt snowball or debt avalanche methods.

The debt snowball method is when you pay off your smallest debt first, then your second-smallest and so on. This builds momentum through quick wins at the outset.

The debt avalanche method is when you pay off your highest-interest debt first, then your second-highest and so on. You then apply the savings in interest to each consecutive debt. This builds momentum as the savings increases.

Enroll in a debt management plan

Nonprofit credit counseling agencies offer debt management plans for a small fee. These plans lower interest and help you pay off unsecured debt, like credit cards, in three to five years.

Debt management plans are available no matter your credit score.

» MORE: What to know about debt management plans

Consider debt settlement last

If those options don't work, you may consider settlement, which is when you settle the debt for less than you owe. This is risky, though, because it damages your credit score and rates of successfully settling are low.

You can first try to settle the debts on your own by calling your creditors and negotiating down the debt. But many people choose to hire a third-party debt settlement company, which negotiates on your behalf. You'll need to pay a settlement fee to the company if the negotiation is successful.