What consolidation actually does
Consolidation replaces several balances with one loan at one rate with one payment and one end date. It does not reduce what you owe. It changes the shape of the debt, and whether that helps depends entirely on one comparison: the APR you are offered against the blended APR of what you are carrying now.
The only test that matters
If the consolidation APR is lower than the weighted average rate of the balances you are clearing, and you do not run those balances back up, you save money. If it is higher, you have simply moved the debt and paid for the privilege. Run both through the debt consolidation calculator before deciding.
A worked example
Suppose you carry $1,800 on a store card at 29.99% and $700 on a credit card at 24.99%. The blended rate is about 28.6%, and paying minimums means the balances shrink slowly while interest keeps accruing.
Consolidating $2,500 into an 18-month loan at 22.9% gives a payment of $165.41 and a total repayment of $2,977.38, so $477.38 in interest and a debt-free date 18 months out. Against the blended 28.6% on revolving balances with no fixed end, that is a genuine improvement on both cost and certainty.
| Amount | Term | Representative APR | Monthly payment | Total repayment |
|---|---|---|---|---|
| $500 | 6 months | 29.9% | $90.75 | $544.50 |
| $1,000 | 12 months | 29.9% | $97.44 | $1,169.28 |
| $2,500 | 18 months | 22.9% | $165.41 | $2,977.38 |
| $5,000 | 24 months | 22.9% | $261.62 | $6,278.88 |
Sample pricing with no origination fee, for illustration. Your rate depends on your credit profile, income, and state.
Change one detail and the answer flips. If those balances were at 15% on a card you were clearing aggressively, consolidating at 22.9% would cost you more. The arithmetic decides, not the marketing.
When consolidation helps
- Your balances carry higher rates than the loan you are offered
- You are paying minimums and the balances are not falling
- Multiple due dates across the month are causing missed payments
- You want a fixed end date instead of an open-ended balance
- The underlying spending has already stopped
When it does not
- Your existing rates are lower than the loan's APR
- The cards will be used again once cleared, leaving you with both the loan and new balances
- You would need a much longer term to make the payment affordable, which raises total interest
- You are already unable to cover minimums, which is a counselling problem rather than a borrowing one
- You would be borrowing to service another loan, which we decline
How it works here
- List every balanceAmount, APR, and minimum payment for each. Work out the weighted average rate.
- Check your rateSoft inquiry, about five minutes, no effect on your score.
- Compare properlyTotal repayment on the loan against what the existing balances will cost at their current rates.
- Pay creditors directlyWe can send funds straight to your creditors rather than to you, which removes the temptation and the delay.
- Close or freeze the cleared accountsNot always closing them, since available credit affects utilisation, but stop using them.
Consolidation loan against the alternatives
| Option | Typical cost | Watch out for |
|---|---|---|
| Balance transfer card | 0% for 12 to 21 months, then a variable rate | A 3% to 5% transfer fee, and needing good credit to qualify |
| Installment consolidation loan | Fixed APR, fixed end date | Only worth it if the APR beats your blended rate |
| Debt management plan | Small monthly admin fee, rates often reduced by creditors | Runs 3 to 5 years; use an NFCC member agency, never a fee-charging settlement firm |
| Paying highest rate first | Free | Requires discipline, but mathematically optimal if you can sustain it |
If your total unsecured debt is large relative to income, a nonprofit debt management plan through the NFCC at nfcc.org will usually beat any consolidation loan, including ours.
What we will not do
We do not approve a larger amount than the balances being cleared in order to increase interest. We do not lend to someone consolidating a loan taken to service another loan. And we say plainly when the arithmetic does not work in your favour, because a consolidation that costs more is not a product, it is a mistake with paperwork.
Questions about debt consolidation
Whether it saves money, what it does to your score, and when a different route serves you better.
Does a debt consolidation loan reduce what I owe?
No. It replaces several balances with one loan at one rate. You save money only if that rate is lower than the weighted average rate of the balances you clear, and only if you do not run those balances back up.
Will consolidating hurt my credit score?
Usually there is a small temporary dip from the hard inquiry and the new account, followed by improvement if you pay on time and your credit utilisation falls because the cards are cleared. The lasting effect depends on behaviour after consolidation, not on the loan itself.
Should I close the cards after paying them off?
Not automatically. Closing accounts reduces your total available credit, which can raise your utilisation ratio and lower your score. Many people keep the accounts open but stop using them. If the temptation is the real problem, closing is the safer choice.
Is a balance transfer card better?
If you qualify for a 0% promotional period and can clear the balance within it, usually yes, allowing for the 3% to 5% transfer fee. If you cannot clear it before the promotional rate ends, a fixed-rate installment loan with a known end date is often the safer structure.
How much can I consolidate?
Up to $5,000 with us, within your state's limits. If your total unsecured debt is significantly higher than that, a nonprofit debt management plan through an NFCC member agency will usually serve you better than a consolidation loan.
Can you pay my creditors directly?
Yes. We can send funds straight to the creditors being cleared rather than to your account, which removes both the delay and the temptation to use the money elsewhere.