Debt consolidation loans: the true cost

What is a debt consolidation loan, and when does it actually save money?

It is not a special product. A lender calls it a personal loan; “debt consolidation” is what the money is used for. The proceeds pay off the old balances, and one fixed payment replaces several. Whether that helps comes down to a comparison most offer pages skip.

Weighted APR, not highest APR

Three cards — $6,000 at 26.99%, $4,000 at 22.99%, and $2,000 at 24.99% — have a balance-weighted APR of 25.32%, not 26.99%. That is the number a consolidation offer has to beat, and it has to beat it after the fee is counted.

Worked example: $12,000 at 24.99% → five-year loan at 14.5% with a 5% fee

The fee is deducted from the proceeds, which is how most fee-charging lenders do it. So to send $12,000 to the cards, the loan has to be written for $12,631.58 — the fee is $631.58, and interest accrues on it too.

Over the same 60 months the loan saves $3,296.77 and lowers the payment by $54.95 a month. Two things to notice. The disclosed APR of that loan is 16.84%, not 14.5% — the fee does that, and it is the number the lender must put in writing. And the saving assumes the cards stay at zero; a person who consolidates and then rebuilds a $12,000 card balance is paying $297.20 a month on the loan plus card interest at 24.99% — the CFPB’s own summary is that most people do not get out of debt by taking on more debt unless spending changes first.

Math: standard amortization, fee deducted from proceeds, disclosed APR solved on the net amount financed per 12 CFR 1026.18. Computed at build time by src/lib/loans/consolidation.ts and pinned by its test; see how we verify what we publish.

Is there a debt consolidation calculator for my own numbers?

Yes — the debt consolidation comparison calculator runs the same comparison as the table above on any balance, APR, new rate, fee, and payoff window. It runs in the browser, stores nothing, and asks for no email. Enter the disclosed APR from the offer, not the interest rate, so the fee is not counted twice.

What changes with debt consolidation loans for bad credit?

The math gets harder to pass, not impossible. Below roughly a 670 FICO score (myFICO’s “fair” band starts at 580; “poor” is below it), advertised rates cluster near the 36% line and origination fees of 8%–12% are common. Fold a 10% fee into a 30% note rate and the disclosed APR lands in the high 30s — above almost every credit card APR, which means the “consolidation” costs more than the debt it replaces. The personal loans for bad credit page walks that example to the cent. What generally works better:

• The 36% ceiling as a hard stop. The Military Lending Act caps the all-in rate for covered servicemembers at 36% (10 U.S.C. § 987; 32 CFR 232). It binds only for them, but it is the most widely recognized line for “too expensive” — and for paying off cards it is close to a mathematical one.
• Credit-union loans and Payday Alternative Loans. Federal credit unions may not charge more than the NCUA Board’s ceiling (18% for years now) on most loans, and a PAL is capped at 10 percentage points above that — 28% — with an application fee of no more than $20: PAL I is $200–$1,000 over 1–6 months, PAL II up to $2,000 over 1–12 months (12 CFR 701.21(c)(7)). Small, but genuinely cheap.
• A co-borrower or a secured loan. Adding a creditworthy co-borrower, or securing the loan with a vehicle, typically moves the rate down a band. Both carry real risk to the other person or the asset — see cosigner liability.
• A debt management plan instead of a loan. Nonprofit credit counseling agencies often get card issuers to lower the rate on a structured plan without any new borrowing — the decision table below covers when that fits.

What credit score do I need for a debt consolidation loan?

Read the bands, not a cutoff. On the FICO ranges myFICO publishes, 670 and up is “good,” 580–669 is “fair,” and below 580 is “poor.” Comparison sites quote a 600 floor as typical for reputable lenders; that is a description of marketing, not a rule, and 12 of the 13 providers in our dataset publish no floor at all. For consolidation the score question is really a price question: the offer has to beat the balance-weighted APR of the cards after the fee, and the fee tends to rise as the score falls. A score in the fair band can still pass the two-condition test with a no-fee lender; a score in the good band can still fail it with a 10% fee. Nothing on this page predicts an approval — no legitimate lender does either.

Sources: Credit Defense Hub personal-loan dataset (published minimums, retrieved 2026-08-24); myFICO, “What is a Credit Score?” (accessed 2026-09-01). The prequalification soft-pull sequence is on the bad-credit page.

How do I compare two debt consolidation loan offers?

Five steps, in order. Federal law makes the first one possible: for closed-end consumer credit, Regulation Z (12 CFR 1026.18) requires the lender to disclose the APR, finance charge, amount financed, and total of payments in writing before you are bound.

1. Step 1

   Line up the disclosed APRs, not the interest rates

   The APR already includes the origination fee. A 14.5% rate with a 5% fee over five years is a 16.84% APR; a 15.9% rate with no fee is a 15.9% APR — and the second one is cheaper. If a lender will not state the APR in writing, stop there.

2. Step 2

   Compare the amount financed to the amount you need

   Fee-charging lenders deduct the fee from the proceeds. If the cards need $12,000, an offer that deposits $11,400 has not consolidated the debt — the remaining $600 stays on the cards at the old rate.

3. Step 3

   Compare the total of payments over the same term

   A lower monthly payment stretched over a longer term can cost thousands more in total. The CFPB flags this specifically. Hold the term constant, then compare the total of payments line on each disclosure.

4. Step 4

   Check for a prepayment penalty and mandatory add-ons

   Every verified provider in our dataset that discloses the term charges no prepayment penalty. Credit insurance or "debt protection" that is required to close raises the true cost without appearing in the APR.

5. Step 5

   Run both against the weighted APR of the debt

   If neither offer beats the balance-weighted APR of the cards after fees, the right answer is neither — a balance transfer, a debt management plan, or simply an aggressive payoff on the cards is cheaper.

Checking a rate through a lender’s prequalification tool is generally a soft inquiry; the full application is a hard one. The distinction, and how to confirm it in a lender’s own disclosure, is covered on the bad-credit page’s prequalification section.

Will a debt consolidation loan hurt my credit?

Sources: CFPB, “What is a credit inquiry?” (Ask CFPB 1317, reviewed 2025-09-05); CFPB, Ask CFPB 1861 (reviewed 2023-08-28). Directions are the usual pattern, not a prediction for any one file; see how credit scores move.

How fast can I get a debt consolidation loan?

The sequence is the same everywhere: a soft-pull rate check, a full application with a hard inquiry, income and identity verification, a written Regulation Z disclosure, then funding — sometimes paid directly to the card issuers, sometimes to your account. Speed never changes the disclosed APR, and it is the wrong thing to shop on: the FTC’s advance-fee warning is precisely that “fast” and “guaranteed” are the words used by operations that collect a fee and never fund. If timing is the real problem — a payment due before a loan could close — the card issuer’s hardship program or a nonprofit counselor is usually faster than any new loan.

What disqualifies a debt consolidation loan offer?

Six rules, in the order they should be checked. Any one of them ends the comparison — a great rate does not rescue an offer that fails the first rule. The list is the same array the site’s code evaluates, so it cannot drift from what is written here.

1. 1. Any fee demanded before the loan funds

   This is the advance-fee loan scam pattern the FTC describes: a "processing", "insurance", or "first payment" fee collected before you receive money. Real lenders deduct fees from proceeds or add them to the balance — they do not collect them up front.

2. 2. No written APR before you sign

   Regulation Z (12 CFR 1026.18) requires the APR, finance charge, amount financed, and total of payments to be disclosed in writing for closed-end consumer credit. A lender that will not put the APR in writing is not one to borrow from.

3. 3. Disclosed APR above 36%

   Above the 36% line (the Military Lending Act cap, 32 CFR 232), a loan used to pay off credit cards almost always costs more than the cards it replaces, because most card APRs sit below it.

4. 4. Origination fee above 8%

   Fees are deducted from proceeds, so an 8%+ fee means you borrow — and pay interest on — noticeably more than reaches your creditors. Our verified dataset benchmarks lenders against a 0%–8% typical range.

5. 5. Prepayment penalty

   The whole point of consolidating is to pay the balance off faster if you can. A penalty for doing so cancels that option; every verified provider in our dataset that discloses this term charges none.

6. 6. Mandatory add-on insurance or "debt protection"

   Required add-ons raise the true cost without showing up in the headline rate. Optional is fine; required to close is a disqualifier.

Frequently asked questions

Sources

• 12 CFR 1026.18 (Regulation Z, closed-end credit disclosures: APR, finance charge, amount financed, total of payments) — consumerfinance.gov (accessed 2026-09-01).
• 10 U.S.C. § 987 and 32 CFR Part 232 (Military Lending Act 36% MAPR cap) — the dataset’s fixed APR benchmark; see the criteria.
• 12 CFR 701.21(c)(7)(iii)–(iv) (Payday Alternative Loans I and II: 1,000 basis points above the Board ceiling, $20 maximum application fee, $200–$1,000 / 1–6 months and up to $2,000 / 1–12 months) — eCFR (current as of 2026-08-27, accessed 2026-09-01; an amendment published at 91 FR 50680 on 2026-08-06 is pending and may change these figures).
• CFPB, “What do I need to know about consolidating my credit card debt?” (Ask CFPB 1861, last reviewed 2023-08-28) — consumerfinance.gov (accessed 2026-09-01).
• CFPB, “What is a credit inquiry?” (Ask CFPB 1317, last reviewed 2025-09-05) — consumerfinance.gov (accessed 2026-09-01).
• FTC, “What To Know About Advance-Fee Loans” (updated 2026-08-13) — consumer.ftc.gov (accessed 2026-09-01).
• myFICO, “What is a Credit Score?” (FICO Score ranges: below 580 Poor, 580–669 Fair, 670–739 Good, 740–799 Very Good, 800+ Exceptional) — myfico.com (accessed 2026-09-01).
• Provider APRs, fees, amounts, and terms: Credit Defense Hub personal-loan provider dataset, retrieved 2026-08-24, with per-provider source URLs — personal-loan-providers.json.