Is Debt Consolidation a Good Idea? Experts Weigh In

It depends on your personal situation
Last updated Aug. 30, 2021 | By Miranda Marquit

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Debt is one of the realities of life for many people. In fact, 23 percent of U.S. consumers believe that getting out of significant debt is practically impossible, according to a Harris Poll commissioned by LightStream.

If you’re trying to figure out how to get out of debt, debt consolidation can be one way to at least get all your obligations in one place so they are easier to wrangle. Once you’ve done that, you have a better chance of paying off your debt faster — and potentially saving money.

So, is debt consolidation a good idea for everyone? As with everything else related to finance, whether it’s the right move for you depends on your situation. Here’s a look at what two experts say about debt consolidation.

How Debt Consolidation Works

Debt consolidation works by getting your debt together in one place. When you have multiple payments to worry about, and several different interest rates, your money isn’t working efficiently on your behalf. Putting all the debt in one place streamlines your payments, and often results in one interest rate that’s potentially lower than the average of your other rates.

In many cases, says Beverly Harzog, a consumer finance analyst with U.S. News & World Report, debt consolidation strategies fall into two broad categories:

1. Loans: This is using a bigger loan to pay off smaller debts. You might be able to use a credit card balance transfer, get a personal loan, tap into your home equity, or get a 401(k) loan. Once you pay off your smaller loans, you only have the one payment.

2. Debt management company: Rather than getting a loan, you use a third-party company to help you manage your debt. They work out a plan with you, and you send one payment to the debt management company, and they make sure your creditors are paid on time. They might even negotiate lower interest rates on your behalf.

Main Goal of Consolidating Loans

For the most part, the goal is to:

  • Figure out a way get your debt in one place,
  • Reduce the payments you make, and
  • Be done with your debt within a set period of time.

Depending on your situation, this can be accomplished on your own or with the help of top debt consolidation providers.

Pros and Cons of Debt Consolidation

As you try to decide if debt consolidation is a good idea, understand the advantages and disadvantages.


  • Only one payment each month
  • If you get a lower interest rate, more of each payment goes toward reducing debt, saving you money
  • You might be able to pay off your debt faster
  • It’s easier to have a pay off date, providing you with peace of mind


  • Missing payments or falling behind can ruin your credit further
  • Without a plan to stay out of debt, debt consolidation can make things worse
  • You might have to pay fees associated with consolidation strategies

The key is to know yourself going in, and protect against the downsides while taking advantage of the possibilities.

What Does Debt Consolidation Cost?

Whenever you get involved with debt consolidation, says Leslie Tayne, a financial debt resolution attorney, you’re probably going to run into costs.

With a personal debt consolidation loan, there might be origination fees. A credit card balance transfer comes with fees. When you hire a debt management company, there’s usually a fee involved.

However, even with the costs, debt consolidation can be a good idea — especially if you have high-interest debt. If you can reduce your interest rate and put more of your monthly payment toward getting rid of principal, you can save hundreds, or even thousands, of dollars on your debt.

“Debt consolidation can be the right move if you’ve calculated that it will for sure cost less than your current debt repayment method,” Tayne says.

“Debt consolidation can be the right move if you’ve calculated that it will for sure cost less than your current debt repayment method,” Tayne says. The key is to be confident you'll ultimately be paying less overall.

Does Debt Consolidation Affect Your Credit Score?

Another concern is what debt consolidation can do to your credit score. Tayne says you’re likely to take at least a small hit in the short run, especially with a debt consolidation loan. However, she says it’s likely to be minimal as long as you keep up with your new payments.

Harzog points out that for some consumers, debt consolidation can actually help a credit score in the long run. “You’re freeing up additional utilization with your credit cards, and showing that you can handle different types of debt,” she says. “However, you have to be careful because if you miss payments or close credit card accounts, the impact could turn negative.”

Is Debt Consolidation a Good Idea if You Have Bad Credit?

If you’re struggling with your credit and trying to figure out how to get out of debt, debt consolidation could help — as long as you can get a loan.

The difficulty, says Harzog, is that many unsecured personal loans are difficult to qualify for if you have poor credit. And if you do get a personal loan with fair or poor credit, you’ll probably pay a higher rate. “Even then, though, you still might be in better shape if the new rate is still lower than the high rates you’re paying now,” she says.

Getting a credit card balance transfer deal without good or excellent credit is practically impossible, so using credit card refinancing is a strategy that might not be a good idea for someone with poor credit.

Bad Credit and Debt Management

With bad credit, you might have better luck with a debt management company or credit counselor that can help you tackle your debt from a different angle. Tayne recommends carefully vetting these companies before entering an agreement.

“Look for a local company that works directly with consumers and has been in business for a long time,” says Tayne. “Consider a company with a history of specializing on your type of problem.”

You can find reputable credit counselors by going through the National Foundation for Credit Counseling.

Is Debt Consolidation Safe?

Tayne and Harzog both warn that you can get caught up in scams when you start looking for debt consolidation solutions. They recommend doing your research and working only with reputable companies, whether you’re getting a debt consolidation loan or getting help with a debt management program.

Debt consolidation can also be problematic if you don’t fix the underlying problems related to the debt. Bundling everything up into a new loan frees up more debt, especially if you’re paying off credit card debt. If you haven’t changed your habits, Harzog warns, you’re likely to just rack up more credit card debt, and now you have twice the debt.

“Be sure you’ll be able to afford your new debt without turning to credit cards to supplement your expenses,” says Tayne.

“Be sure you’ll be able to afford your new debt without turning to credit cards to supplement your expenses,” says Tayne. “Taking out a new debt consolidation loan won’t solve your cash flow problems.”

Is Debt Consolidation a Good Idea for You?

Because there are different strategies for debt consolidation, Harzog says it’s important to pay attention to the technique most likely to benefit you.

“You can have good credit, even with a lot of debt,” Harzog points out. “That gives you more options when looking at your debt consolidation choices.”

For example, if you think you can pay off your debt in less than two years, and you have good credit, you might choose a 0% APR credit card balance transfer. On the other hand, says Harzog, if you know you’ll need longer to tackle your debt, a personal loan could be a better option.

Poor credit will limit your choices, says Tayne. You might not be able to qualify for a personal loan, and be stuck figuring out a debt payment plan on your own, or turning to a debt management company.

In the end, debt consolidation can be a good choice if you’ve already started changing your spending habits so you’ll stay out of debt when you finish. As long as you know what you’re getting into, and you choose the strategy that fits your needs, there’s a good chance debt consolidation could help.

National Debt Relief Benefits

  • No upfront fees
  • One-on-one evaluation with a debt counseling expert
  • For people with $10,000 in unsecured debts and up

Author Details

Miranda Marquit Miranda Marquit has been covering money for more than a decade and is a nationally-recognized financial expert and journalist, appearing on CNBC, NPR, Forbes, Yahoo! Finance, FOX Business, and numerous other outlets.