Debt Consolidation Loans, Explained on One Page
One loan replaces several balances. That's the whole idea. Whether it helps depends on three numbers you can check in five minutes.
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Key takeaways
- A consolidation loan swaps several revolving balances for one fixed payment and one payoff date.
- It's likely worth it if your prequalified APR is at least five points below your blended card rate.
- It doesn't reduce what you owe — it changes how you owe it.
A debt consolidation loan is a personal loan used to pay off other debts, usually credit cards. You end up with one fixed monthly payment, one interest rate, and one payoff date instead of several revolving balances that never quite close.
The three numbers
- Your blended APR today. Add up the interest each card charges per month, divide by the total balance, multiply by 12. If your cards are at 22–29%, your blended rate is somewhere in there.
- The APR you qualify for. Not the advertised "from 6.99%." The one on your prequal. If it's at least five points below your blended rate, consolidation is likely worth it.
- Total cost of each path. Interest plus fees, to payoff. The monthly payment matters for cash flow, but total cost is what you're buying.
What consolidation does not do
It doesn't reduce what you owe. It doesn't fix the spending that built the balances. And it doesn't help if you consolidate, then run the cards back up. The loan is a tool for people who have stopped adding debt and need a cheaper, structured way to pay what's already there.
Who it's for
Credit in the mid-600s or better, steady income, total unsecured debt roughly $5,000 to $50,000, and a DTI that leaves room for the loan payment. Outside that box, other paths (hardship programs, debt management plans, settlement) may fit better.
The one-line version
It doesn't reduce what you owe. It changes how you owe it.
