Debt Consolidation loans: The Pros and Cons

Debt consolidation Solutions have been a topic of much debate for years. While financial institutions will try and entice you to transfer your higher interest debt to their new account with low introductory interest rates, financial experts say, “look before you leap” before applying for a debt consolidation loan or transferring your credit card balances.

Is loan consolidation a good idea? Will it solve your problem of a seemingly endless cycle of debt payments? How do consolidation loans work? Let’s answer these questions and more as we examine the pros and cons of debt consolidation.

Is loan consolidation a good idea?

While a consolidation loan is a good idea for some people, it’s not a one-size-fits-all solution to everyone’s issues with debt.

If you qualify, a consolidation loan lets you combine your debts into a new loan with more favorable terms than you previously had. For example, you may have two credit cards with interest rates over 18% but be able to take out a consolidation loan and combine the balances of those two cards into a new loan with a 12% interest rate.

While that may seem like a very easy decision to make, consolidation loans have some pitfalls. Let’s look at the pros and cons of consolidation loans so you can apply them to your situation and make the right choice regarding how you should proceed.

Pros and cons of debt consolidation

Like everything, debt consolidation has its advantages and disadvantages.

When looking at the pros listed below, they are very attractive if you are struggling or failing to make your monthly minimum loan payments. You’ll only have one monthly payment instead of multiple payments, and your monthly payment could be lower.

But, as the cons point out, with a debt consolidation loan, you may be putting a Band-Aid on a more serious underlying financial problem, such as poor budgeting or excessive impulse buying. And, if your credit is suspect because of late or missing payments on your existing loans, you may not qualify for a lower rate.

Pros of debt consolidation Cons of debt consolidation
  • You could receive a lower interest rate.
  • You’ll have just one monthly payment.
  • Your monthly payment might be lower.
  • You could get out of debt faster.
  • You could build your credit.
  • You may not qualify for a low rate.
  • Missed payments could make things worse.
  • It doesn’t address underlying financial issues.
  • You may have hefty upfront fees and charges.
  • You may end up paying more in interest.

The benefits of debt consolidation

There are many benefits of debt consolidation. Here are several:

  • A lower payment: The average American family’s credit card debt in 2022 is just over $6,200. If that debt were spread over two cards with a 24% interest rate, the monthly payment would be about $190. However, that same debt, consolidated into a single loan with an interest rate of 17%, would carry a payment of around $150 per month.
  • 0% introductory APR offers: there are numerous 0% APR (annual percentage rate) credit card offers for people with very good credit or better. Many of these cards offer that rate for the first 24 months, which can significantly reduce your payment and the amount of interest you’d pay over the life of the loan.
  • Eliminate debt quicker: lower payments and less interest paid means you can get out of debt faster than tacking on interest to your monthly payment. By paying more than your new payment amount every month, you can accelerate your loan payoff even quicker.


After weighing the pros and cons of debt consolidation, if you’ve d