Debt consolidation: when to use it

A tool, not a magic fix

Consolidation combines multiple debts into one loan, usually at a lower rate. Done right, you save thousands. Done wrong, you pay more fees over a longer term.

Common mistake: consolidate cards, feel relief, run them back up. Now you have the loan AND new card debt.

Use it only if you've fixed what caused the debt.

Key points

• Good consolidation lowers your rate. Replacing 22% cards with a 10% personal loan is a win. Replacing them with a 19% loan isn't.
• Watch the term. A "lower monthly payment" usually means a longer loan. Longer term can mean more total interest even at a better rate.
• Avoid debt relief companies. Massive fees, advice to stop paying creditors, often don't deliver. Go to a reputable lender directly.
• Never consolidate unsecured into secured. Rolling card debt into a home equity loan means a default costs you the house. Not worth it.