At a Glance

Debt consolidation is one of the best ways to pay off your debt more quickly by streamlining it into one monthly payment with a lower interest rate. But debt consolidation isn’t a one-size-fits-all solution. There are different approaches depending on what kind of debt you’re trying to consolidate, what rate you’ll qualify for, and other factors. Understanding the pros and cons of each method will give you a better idea of which tactic will work best for you.

  • Debt consolidation loan pros and cons
  • Pros and cons of consolidating credit card debt
  • Pros and cons of debt consolidation services alternatives


Like most things in life, debt consolidation has advantages and disadvantages. Debt consolidation isn’t necessarily good or bad (it’s not like free food), but depending on your financial situation, this approach to debt repayment may or may not be possible. And for certain people, the benefits of debt consolidation will be greater than the risks.

Debt consolidation loan pros and cons

A personal loan for debt consolidation is the most common debt consolidation method. This approach allows you to combine multiple debts—ranging from credit card and medical debt to auto and student loan debt—into one manageable monthly payment with a low interest rate, eliminating the need to cruise from one lender’s website to another to pay those pesky bills.

Here’s a look at the pros and cons of a personal loan for debt consolidation.

Benefits of debt consolidation loans

Simplify your debt repayment

If you have multiple debts, trying to keep track of how much you owe each month and when your payments are due can be like trying to keep track of your friends’ birthdays without Facebook reminding you. I know, Gen Z, no one’s on Facebook anymore. But y’all get the point. (What do you use to remember birthdays, by the way?)

Get a fixed monthly payment

A fixed monthly payment gives you a definitive timeline for when you’ll have your debt paid off completely, which can be a nice change of pace if you’re someone with a lot of revolving debt, like credit cards, where your payment changes from month to month.

Lower your interest rate

You may be able to get a better interest rate depending on the type of debt you’re consolidating.

For example, credit cards tend to have higher interest rates than personal loans. The average credit card APR in 2020 was 16.28%, according to the Federal Reserve, while the average 24-month personal loan APR was 9.34%. Debt consolidation loan rates vary, but odds are you’ll be able to find one with a better rate.

Repay your debt more quickly

Nobody wants to be in debt long-term, or at all for that matter. Debt consolidation loans offer a way to save money on interest, which means paying less toward debt, thus speeding up the debt repayment process.

Use a debt payoff calculator to get an idea of when you could have your debt paid off.

Improve your credit (maybe)

So, you’re telling me there’s a chance. Yes, indeed. With a single monthly payment, you’re less likely to stumble and miss a payment. Late payments are one of the biggest contributing factors to your credit score, which means making on-time payments can help your score. You can also reduce your credit utilization ratio and lengthen your credit history, both of which can contribute to raising your credit score.

Disadvantages of debt consolidation loans

Might not get a better interest rate

OK, I know I said you might be able to get a better interest rate, but might is the key word there. Your interest rate depends on the amount of the loan, loan term, and your credit score. If you don’t have the best credit score, that will hurt your chances of getting a lower interest rate.

Potential fees

Debt consolidation loans can come with a barrage of fees both upfront and on the back end, including origination fees, prepayment penalties, late fees, and returned payment fees. Make sure you read the fine print before committing to a loan. If you’re paying more in fees than your potential interest savings, it’s like trying to talk politics with that one uncle of yours—just not worth it.

Avoids root issue

Look, I know all about avoidance. It took me until my late 20s to finally go to therapy. (Might I also recommend therapy to everyone who’s able?) Debt consolidation can be great, but it’s kind of like when you lose 20 pounds after trying a fad diet then gain 30 over the next couple of years. Both weight loss and ridding yourself of debt require lifestyle changes—not a quick fix.

If you want to get to the root of the problem, consider making a budget and sticking to it. If you already have a budget but you’ve been ignoring it like DMs from a perv, break it back out and see if there are opportunities to cut costs. Ultimately, you want to make sure you’re spending less than you’re making.

Creating or adding to an emergency fund also can be a good step to combat the dreaded debt cycle. Experts generally recommend setting aside three- to six-months’ worth of living expenses. If you budget wisely, you should be able to come up with a debt repayment plan while also saving. You really can have it all (except maybe your parents’ approval—don’t worry, you’ll explore that further in therapy).

Debt Consolidation Loan Pros and Cons
Debt Consolidation Loan Pros and Cons

Pros and cons of consolidating credit card debt with a balance transfer card

You can certainly use a debt consolidation loan to consolidate just credit card debt if you have multiple credit cards, but if your credit score is excellent (party on, Wayne!) you may be able to qualify for a balance transfer credit card.

A balance transfer card allows you to consolidate credit card debt by moving your high-interest debt from one card to another, typically with a 0% introductory APR offer. Just like with debt consolidation loans, there are pros and cons of consolidating credit cards via balance transfer.

Benefits of credit card debt consolidation with a balance transfer card

The benefits of consolidating credit card debt with a balance transfer card are pretty similar to the benefits of debt consolidation with a personal loan.

  • 0% introductory APR offers: Instead of lowering your interest rate like you would with a debt consolidation loan, you can temporarily eliminate interest with a balance transfer card. Most cards come with 0% introductory APR offers that last somewhere between 12 and 21 months, so to take full advantage—it’s important to pay off your debt within that window.
  • Pay off debt more quickly: With the money you’ll save on interest from a 0% intro APR offer, you’ll be able to put more toward your balance and get out of the hole faster.
  • Streamline finances: As with a debt consolidation loan, you’re going from multiple credit card payments with multiple due dates to one easy monthly payment.

Disadvantages of credit card debt consolidation with a balance transfer card

Of course, it’s not all sunshine and rainbows with a balance transfer credit card.

  • More difficult to qualify for: These typically require good-to-excellent credit scores to qualify, so if your credit score isn’t up to snuff, you’ll need to consider alternatives or improve your credit score.
  • Potential balance transfer fees: Most balance transfer cards come with a balance transfer fee of 3-5% of the amount transferred, but you might be able to get this waived, especially if you’re a new customer.
  • Possible transfer limits: The credit card issuer may only let you transfer a certain amount, so if you’re looking to transfer more than that cutoff, a balance transfer card may not be your best option.
Pros and Cons of Consolidating Credit Card Debt
Pros and Cons of Consolidating Credit Card Debt

Which is best for me: Debt consolidation loan or balance transfer credit card?

If your credit score makes heads turn and you’re disciplined enough to repay your debt within the 0% intro APR timeframe, a balance transfer card is probably your best option. If not, a debt consolidation loan is probably the way to go. There are alternative debt consolidation services, like home equity loans and home equity lines of credit (HELOC), which—you guessed it—have pros and cons of their own.