Is a Debt Consolidation Loan Worth It? Compare the Total Cost

A consolidation loan replaces several high-rate balances with one fixed loan. It can save a lot, but a lower monthly payment is not the same as a saving. The term and any origination fee decide whether it actually costs less.

A worked example

A hypothetical $15,000 credit card balance at 23.99% APR, paid at $450 a month, takes 4 yr 8 mo to clear and costs $9,958 in interest.

A consolidation loan at 11.99% charges a 5% origination fee ($750), added to the loan:

Option	Monthly payment	Interest + fee	Saving vs staying
Keep paying the card	$450.00	$9,958	—
Consolidate over 48 months	$414.68	$4,905	$5,053
Consolidate over 72 months	$307.83	$7,164	$2,794

Both loans beat the card. The 72-month loan has the lowest payment but saves roughly $2,260 less than the 48-month loan, because interest runs for two more years.

Compare offers in the debt consolidation calculator.

When consolidation goes wrong

• The cards get used again. Consolidating and then running the balances back up leaves you with the loan and new card debt.
• The term is stretched too far. A long term can cost more than the debt it replaced, even at a lower rate.
• The fee is overlooked. Compare total cost, not just APR. A low rate with a high fee can lose to a slightly higher rate with none.

For balances you can clear within a year or so, a 0% balance transfer may cost even less.

Source: CFPB: Consolidating credit card debt.