How do I consolidate debt?

Debt consolidation means rolling multiple debts into a single new loan or credit line — ideally at a lower interest rate — so you make one monthly payment instead of many. The two most common methods are a personal loan and a balance-transfer credit card.

Debt consolidation is a payoff strategy, not a payment holiday. It only helps when the new rate is meaningfully lower than your current weighted average rate across all debts. If it is, you reduce total interest paid and simplify to one payment. If it isn't, you're just rearranging the furniture.

Step 1: Calculate your current weighted average APR

List each balance and its APR.
Multiply each balance by its APR, sum the results, then divide by your total balance. That's your weighted average rate.
Any consolidation product that charges less than that number saves you money. Any that charges more costs you more.

Step 2: Choose a consolidation method

Personal loan: Fixed rate, fixed term (typically 24–84 months), funded as a lump sum deposited to your bank account. You pay off the old accounts yourself. Rates range from roughly 7% to 36% APR depending on credit score, income, and debt-to-income ratio. See What Is a Personal Loan?.
Balance-transfer credit card: Promotional 0% APR window (typically 12–21 months) on transferred balances, with a transfer fee of 3–5% of the transferred amount. Powerful if you can pay off the full balance before the promo period ends — dangerous if you can't, because the go-to rate is often 25%+.
Home equity loan or HELOC: Secured by your home, so rates are lower — but you're converting unsecured debt to secured debt. If you can't repay, you risk foreclosure. Best reserved for borrowers with significant equity and a solid repayment plan. See Is a Home Equity Loan Good for Debt Consolidation?.
Debt management plan (DMP): A nonprofit credit counselor negotiates reduced interest rates with creditors and you make one monthly payment to the agency. Not a loan. See What Is a Debt Management Plan?.

Step 3: Check your eligibility

Most personal loan lenders want a FICO score of 640+, a debt-to-income ratio below 36–43%, and verifiable income. The lower your score, the higher your rate — and at some point (typically below 580) it's hard to beat the rate you're already paying. See What Credit Score Do You Need to Consolidate Debt? for the thresholds.

Step 4: Rate-shop without hurting your score

Use lender pre-qualification tools (soft pull, no credit impact) to compare rates before formally applying.
If you apply with multiple lenders, do it within a 14–45 day window. Most FICO models treat multiple loan inquiries in that window as a single inquiry.
Once approved, use the funds to pay off the target accounts immediately — don't let them sit.
Close paid-off accounts only if you have a plan for credit utilization; leaving accounts open with a zero balance helps your utilization ratio.

The consolidation trap

Consolidation fails when borrowers pay off credit cards with the loan proceeds, then run the cards back up. Now they have the consolidation loan plus new card debt. Before consolidating, address the spending pattern, not just the balance.

What the data shows

The CFPB notes that debt consolidation can simplify payments and reduce interest costs if the new loan's APR is lower than the combined rate on existing debts. — CFPB
The Federal Reserve's Survey of Consumer Finances consistently shows credit card debt as the highest-APR consumer liability, making it the most common consolidation target. — Federal Reserve

Key takeaways

Consolidation only saves money when the new rate is lower than your current weighted average APR.
Personal loans work for most borrowers; balance-transfer cards are best if you can clear the balance in the promo window.
Home equity consolidation converts unsecured debt to secured — your home is on the line.
Rate-shop with soft pulls first; multiple hard inquiries within 14–45 days count as one for FICO purposes.
Stop using the accounts you paid off or the strategy will make your total debt worse.