Debt Consolidation
without getting trapped.

When Consolidation Actually Wins

The honest test is simple. Consolidation saves money when:

1. The new effective APR (rate + origination fee amortized) is materially lower than the weighted-average APR of the debts you're paying off, AND
2. You don't extend the term so far that the lower rate is offset by paying interest for more years, AND
3. You actually close — or at least don't recharge — the credit cards you just paid off.

Numbers 1 and 2 are math. Number 3 is behavior. Most failed consolidations fail on #3: people pay off $25k in cards with a 36-month loan, then run the cards back up over the next 18 months. Now they have $25k of installment debt plus $25k of revolving debt.

The Four Fees That Eat the Win

1. Origination fee (1–10% of loan, deducted from proceeds). On a $25k loan with 7% origination, you receive $23,250 but owe $25,000 — your effective APR is 2–3 points higher than the quoted rate. Always run this through the personal loan calculator's effective-APR field.
2. Prepayment penalty on the old debt. Rare on credit cards, common on auto loans and some private student loans. Read the loan agreement before consolidating.
3. Balance-transfer fee (3–5% on credit-card BT offers). Common loophole: a 0% APR for 18 months sounds great, but the 5% transfer fee on a $20k balance is $1,000 — equivalent to a ~6.5% APR over 18 months even though the headline rate is zero.
4. Closing fee on a HELOC or cash-out refi. $1,500–$5,000. If you're consolidating $15,000 of credit-card debt, a $3,000 closing fee is a 20% upfront cost on the principal you're consolidating. The math rarely works under $30k of debt.

Worked Example

Say you have:

• $8,000 on a card at 24.99% APR (min payment $240)
• $5,000 on a card at 19.99% APR (min payment $150)
• $4,500 on a card at 27.99% APR (min payment $135)

Weighted average APR: ~24.4%. Total minimums: $525/month. At minimums, payoff time is 8+ years and total interest is roughly $13,500.

Now suppose you qualify for a 60-month personal loan at 13.99% with a 4% origination fee. You take $17,500 to clear all three cards.

• Net proceeds: $17,500 × 0.96 = $16,800. You'd actually borrow $18,229 to net $17,500 after fees.
• Monthly payment: ~$424
• Total interest over 60 months: ~$7,200 (plus the $729 fee built in)
• Effective APR: ~16.1%

You save roughly $5,500 in interest and $100/month in cash flow — IF you don't recharge the cards.

The 36-Month Test

If you can't pay the new loan off in 36 months on the proposed monthly payment, the term is too long for the rate to win. Reason: at 14% APR over 60 months, you're paying ~24% of principal in interest. Over 36 months, you're paying ~14%. The longer the term, the more rate matters.

HELOC vs. Personal Loan

A HELOC at 9% looks unbeatable next to a personal loan at 14%. But a HELOC is variable-rate and secured by your home. If you lose your job and stop paying, you can lose the house — converting unsecured credit-card debt into a foreclosure risk. Use the personal loan calculator to compare both, but know what you're trading away on the secured side.

What to Run Through the Calculator

1. Add up your current minimum payments on all debts you'd consolidate.
2. Plug the consolidation loan into the personal loan calculator with the origination fee in the dedicated field — that gives you effective APR.
3. Compare effective APR (the new loan) to your weighted-average APR (the existing debt).
4. Set "extra payment" to the difference between your old minimums and the new payment. That accelerates payoff and is the real win of consolidation.

Sources

CFPB Personal Loan Cost Survey; Federal Reserve G.19 Consumer Credit data; TransUnion Q4 2025 industry insights.