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What Is Debt Consolidation?
5 Min Read | Last updated: July 10, 2026
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Debt consolidation can simplify your life and help you gain more control of your finances by consolidating some of your monthly bills into a single loan.
At-A-Glance
- Consolidating multiple debts into a single loan could simplify personal finances, lower monthly payments, and help lead you out of debt.
- Debt consolidation only works for some people and some types of debt.
- Alternatives to debt consolidation include reducing expenses, consulting a credit counselor, and negotiating with your creditors.
Many people (especially millennials) are juggling multiple debts, including personal loans, student loans, credit cards, mortgages, and car loans. As of June 2025, millennials reportedly carried an average of $132,280 in consumer debt, according to recent data from Experian.1 That’s over $27,000 more than the average American debt balance. Consolidating multiple high-interest debts into a single monthly payment might seem like you’re just moving money around, but the benefits are tangible. If you’re not familiar with debt consolidation, it can be worth learning more about how it could improve your life.
What Is Debt Consolidation?
Consolidating your debt usually means rolling several credit card balances, outstanding loans, and other debts into one personal loan. The goal of this restructuring is to leave you with a single, more manageable payment. While a personal loan is one way to accomplish this, you could also opt for a home equity loan, a balance transfer credit card, or a 401(k) loan to achieve similar results. If debt consolidation sounds like it might be a good fit for your needs, be sure to consider the possible advantages and potential downsides to decide if it suits your circumstances.
Why Consolidate Debt?
There are several powerful plus sides to consolidating debt:
- Simplification
Managing multiple debts with different interest rates, due dates, and monthly payments is challenging. A debt consolidation loan combines multiple payments into one with a single due date and a fixed interest rate. - Lower Payments
The fixed interest rate and loan term of a debt consolidation loan can reduce your monthly payment and give you more breathing room to pay off your debt. - Possibly Better Credit Score
A new loan may improve your credit score in the long term by giving you a better mix of installment and revolving debt. If you pay on time, every time, it can also help you build a strong payment history. - Faster Debt Payoff
It can take years to pay off high-interest debt if you’re only paying the minimum each month. Debt consolidation loans can shorten your repayment timeframe if you choose a shorter loan term, and you’ll know exactly when you’ll be debt-free. - Savings on Interest
Choosing a debt consolidation loan with a lower interest rate than your existing debts can reduce the interest paid on your outstanding balances.
Why Not Consolidate Debt?
Debt consolidation isn’t the right solution for every scenario. Among the arguments against consolidating your debt:
- Doesn’t Work on Everything
Not all debts are good candidates for consolidation. Credit card balances and unsecured loans may work well, but secured debt, such as car loans or mortgages, do not. - Paying More Over Time
Even if your monthly payment is more manageable, you might pay more due to a longer repayment term or fees. - Upfront Fees
There may be origination or other upfront fees associated with a debt consolidation loan, which can make borrowing more expensive. - Potential for More Debt
When you pay off revolving credit with a debt consolidation loan, you’ll have more credit available. If you’re tempted to overspend, it can be easy to get back in debt. - Credit Challenges
If your credit isn’t strong, you may have trouble qualifying for a debt consolidation loan with favorable terms.
Unsure whether debt consolidation is right for you? Do the math with a debt consolidation calculator to find out if your savings could outweigh the potential costs.
Debt Consolidation Calculator
Use this tool to help decide if debt consolidation is right for you. Enter the balance, interest rate, and monthly payment amounts for your various ongoing debts below.
Step 1 of 3
Your current debt summary
This is how much debt you have right now, your total monthly payments, and average APR (Annual Percentage Rate) across all debts.
TOTAL DEBT
$0
CURRENT TOTAL MONTHLY PAYMENTS
$0
AVERAGE APR
0%
Customize Your Consolidation Loan
Enter an annual interest rate and potential term length you might target to pay off one consolidated loan.
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| METRIC | BEFORE CONSOLIDATION | AFTER CONSOLIDATION |
|---|---|---|
| Debt Amount | $0 | $0 |
| Monthly Payment | $0 | $0 |
| Annual Interest | 0% | 0% |
| Total Interest Paid | $0 | $0 |
| Total Payments to pay | $0 | $0 |
| Time to Pay Off Debts | 0 months | 0 months |
| Total Savings | $0 |
Debt Amount
BEFORE CONSOLIDATION $0
AFTER CONSOLIDATION $0
Monthly Payment
BEFORE CONSOLIDATION $0
AFTER CONSOLIDATION $0
Annual Interest
BEFORE CONSOLIDATION 0%
AFTER CONSOLIDATION 0%
Total Interest Paid
BEFORE CONSOLIDATION $0
AFTER CONSOLIDATION $0
Total Payments to pay
BEFORE CONSOLIDATION $0
AFTER CONSOLIDATION $0
Time to Pay Off Debts
BEFORE CONSOLIDATION 0 months
AFTER CONSOLIDATION 0 months
Total Savings
$0
This calculator is intended for illustrative purposes only and is not intended to offer any tax, legal, financial or investment advice. The terms and conditions of loans will vary by lender and may include additional fees or other terms that the calculator does not contemplate. If you have questions, please consult your own professional legal, tax and financial advisors.
Actual interest earned will vary, depending on your financial institution and their method of calculating interest.
Actual interest earned will vary, depending on your financial institution and their method of calculating interest.
Who Qualifies for Debt Consolidation?
The worse your debt situation is, the less likely it is that debt consolidation will solve your problem. If your credit score, debt-to-income ratio, or other facets of your financial profile aren’t up to snuff, it may be difficult to get approved with a traditional bank. And the loans you might qualify for may have high interest rates, which doesn’t help your situation. In this scenario, it may be helpful to make improvements to your credit or financial situation before pursuing consolidation.
What Debt Can Be Consolidated?
You may be able to consolidate unsecured debt (think: credit card debt and personal loans), more easily than secured debt (home mortgages and auto loans). Since secured debts tend to have lower interest rates than unsecured debts, consolidation is unlikely to be helpful.
If your federal student loans have a variable interest rate, you may consider consolidation to have a fixed rate.2
When Should You Consolidate?
Before pursuing debt consolidation, it’s generally best to consider some practical alternatives:
- Make a concerted effort to adjust your spending to cover your current bills, and avoid taking out new credit.
- Reach out to your creditors to negotiate better terms.
- Consult with a certified credit counselor for a custom plan to pay down debt.
- Look for ways to increase your income to contribute more toward your balances.
Where Does the Consolidation Loan Happen?
Debt consolidation loans, including personal loans and home equity loans, can be arranged primarily through banks or fintechs. An alternative to a debt consolidation loan could be a 0% balance transfer credit card, if your credit card balances are your biggest headache.
Another type of debt consolidation is available through debt relief companies, which will help you develop debt management plans and debt settlement plans that don’t involve loans. Instead, they renegotiate with creditors on your behalf to settle or change the terms of your existing debt.3
How to Consolidate Debt
If you’re considering debt consolidation, here’s a brief overview of how you could proceed:
- Determine If It’s Right for You
Your credit score and debt-to-income ratio will likely be two deciding factors. Also consider how much debt you have. If you think you could reasonably pay it off within a year, maybe by making a few extra payments, consolidation may not be worth it. - Decide Which Debt to Consolidate
High-interest loans, credit cards, private student loans, or medical bills are typically suitable candidates. If you’re not sure, it can help to talk to a nonprofit credit counselor.4 - Choose the Right Consolidation Option for You
If you’re facing five figures of debt, a balance transfer card probably won’t work as well as a personal loan. If you need to combine multiple personal loans, a home equity loan could be a better choice. But remember, a home equity loan uses your home as collateral, meaning if you can’t make payments, you could risk losing your house.5 - Apply for the Loan
Be sure you can pay the new monthly payments and that the terms are agreeable to your financial situation. - Budget and Make Payments
Remember, when your debt is consolidated, it’s not paid off. It’s just restructured into a simplified monthly payment. Keep a tight budget to stay on track.
Frequently Asked Questions
In most cases, debt consolidation does hurt your credit score, even if it’s just temporarily. A hard credit inquiry from applying for a debt consolidation loan may impact your credit score by 2 to 10 points per inquiry. However, that impact is temporary and may be outweighed by other positive scoring factors. Unlike a loan, a debt settlement program will have a larger impact on your credit score that can last for multiple years.
The payment for a $50,000 consolidation loan depends on several factors, including interest rate, repayment term, associated fees, and how lenders view your financial profile. As of November 2025, the Federal Reserve Bank of St. Louis reports that a 24-month personal loan has an average interest rate of 11.65%.6 Assuming you could qualify for this interest rate and loan term, the monthly payment on this would be $2,345.51.
The Takeaway
For millennials and other borrowers struggling to meet mounting debt obligations, debt consolidation could be the lifeline you need to regain control over your finances. While it doesn’t work in every scenario, it’s particularly good for handling multiple unsecured debts with high interest rates. If you qualify, you could see benefits like a lower interest rate, a lower monthly payment, and a set payoff date. It may even allow you to pay off debt faster than you originally planned. However, if your credit isn’t the strongest or your debts are mainly secured, this may not be the right option for you.
1 “Average American Debt by Age, US State, Credit Score and Type in 2025,” Experian
2 “Should I consolidate my federal student loans into a federal Direct Consolidation Loan?,” Consumer Financial Protection Bureau
3,4 “How to Get Out of Debt,” Federal Trade Commission
5 “What is a home equity line of credit (HELOC),” Consumer Financial Protection Bureau
6 “Finance Rate on Personal Loans at Commercial Banks,” Federal Reserve Bank of St. Louis
Karen Lynch is a journalist who has covered global business, technology, finance, and related public policy issues for more than 30 years.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
