Image shows 10 different pros and cons of debt consolidation

If you are dealing with a combination of debt types such as medical debt, payday loans, and credit card debt, you may be considering debt consolidation.

In short, debt consolidation is where you are consolidating multiple debts that have payments associated with one debt and one single monthly payment. You can consolidate debt that has a monthly payment or one lump sum payment.

As someone who worked as an executive at a debt consolidation company for many years, I tend to think that I have a more insider, exclusive via of the pros and cons of debt consolidation.

Two types of Debt Consolidation

Before jumping into the advantages and disadvantages of debt consolidation, it’s important to understand that there are two types of debt consolidation: 

  1. Debt consolidation loans
  2. Debt consolidation programs.

These are vastly different, but it’s important to understand the differences because some deceptive companies may attempt to say, “you don’t qualify for a debt consolidation loan, but you qualify for a debt consolidation program”.  A debt consolidation program is where you would enter your debts into a program, let the accounts go past due, and then the program would try to settle the debts. You can be sued in a debt consolidation program because your debt goes behind and your credit score will be negatively affected.

We will cover debt consolidation loan pros and cons in this article, but I plan to write another article covering a debt consolidation program

Quick summary: Pros and Cons of Debt Consolidation

Pros of Debt ConsolidationCons of Debt Consolidation
You can receive a lower rate and save money You will have to pay an origination fee
You have one payment instead of multiple paymentsYour monthly payment can be high
You can get out of debt fasterYou may not save money on all of the debt you consolidate
Your credit score may improveYou may not have addressed the root cause of the debt
You will have a fixed interest rate instead of a variable interest rateYou may face lower payment flexibility if you face financial hardship
Your credit report will have a new hard credit pull

Pros of Debt Consolidation

You can receive a lower rate and save money

One of the biggest draws of a debt consolidation loan is that you can receive a lower interest rate than your credit cards, saving you money in the process. 

Let’s look at an example:

  1. Credit Card 1 = 27.99% interest rate, Balance = $5,000
  2. Credit Card 2 = 20.99% interest rate, Balance = $10,000
  3. Credit Card 2 = 14.99% interest rate, Balance = $5,000

In this example, let’s say you qualify for a debt consolidation loan of $20,000 at an interest rate of 12.99%. 

Instead of paying higher interest rates on all of your credit cards, you will have just one payment each month at an interest rate that will save you money.

You have one payment instead of multiple payments

In the above example, we are looking at 3 credit cards that are consolidated into 1 debt consolidation loan payment. With debt consolidation, the more payments you are consolidating can simplify your life drastically.

Let’s look at the following example where a debt consolidation loan may be more appealing.

  1. Credit Card 1 = 27.99% interest rate, Balance = $5,000
  2. Credit Card 2 = 20.99% interest rate, Balance = $10,000
  3. Credit Card 2 = 14.99% interest rate, Balance = $5,000
  4. Debt consolidation loan 1 = 19.99% interest rate, Balance $3,000
  5. Medical bill 1 = Balance = $4,500
  6. Medical bill 2 = Balance = $700
  7. Payday Loan = 200% interest rate, Balance = $1100
  8. Car Loan = 19% interest rate, Balance = $8,000

As you can see, with a debt consolidation loan of around $38,000, you would consolidate 8 monthly payments into just 1 monthly payment.

So, a debt consolidation loan can simplify your life through fewer monthly payments.

You can get out of debt faster

Paying the minimum payment on your credit cards each month means that it can take years to payoff your balance. Many people make just minimum monthly payments, and according to one study, only 1% of credit card accounts adopted the suggested payoff plans offered by credit cards to get out of debt in 3 years instead of many more years.

Thankfully, a debt consolidation loan is often on a 3-5 year fixed payment plan, so you now get the accountability to payoff your debt faster than if you would make minimum payments.

Your credit score may improve

Your credit mix accounts for 10% of your credit score, which is the diversity of the types of credit in your portfolio (loans, credit cards, mortgages, etc.). So, a debt consolidation loan can help your credit score.

Also, when you pay off all of the balances from your debt consolidation loan, that shows positive behavior. 

And, as you pay off the balances faster, you’re over-credit utilization will decrease, leading to a potentially positive credit outcome.

You will get out of debt in a fixed amount of time

One of the biggest advantages of a debt consolidation loan is that it is an installment credit instead of a revolving credit. This essentially means that there is a fixed period of time when your debt will be completely paid off.

As stated above, you could make a credit card minimum payment that takes over 10+ years to get out of debt, and a personal loan that doesn’t allow new credit to be added can be 3-5 years.

The above scenario is assuming you do not take out additional debt on the credit cards that you consolidated, and we will cover that in the cons section later.

You will have a fixed interest rate instead of a variable interest rate

Debt consolidation has a fixed interest rate at the time when you take out the loans. With the interest rates increasing in 2022, you could see many banks issuing credit cards following suit by increasing the variable interest rates on credit cards. With credit cards, your credit issuer is not even required to provide a 45-day warning of the increase.

So, a debt consolidation loan can be extremely helpful because you lock in the interest rate when the loan originates, similar to a mortgage loan.

Cons of Debt Consolidation

As someone who worked in debt consolidation, I believe I have a detailed understanding of the cons of debt consolidation that many people may be unaware of.

You will have to pay an origination fee

A loan origination fee can range between 1 and 8% of the origination amount. The fee is basically the cost of the loan provider to originate the loan. This can include the costs of doing underwriting, pulling credit reports, etc. The fee may depend on what type of loan you are taking. For example, a mortgage origination fee can have an origination fee between 0.5 and 1%, and a debt consolidation loan origination fee can be between 4 and 6%.

While the fee is often necessary, it’s important that you understand that it can be a high cost and is also removed from your loan amount.

For example, let’s say you took a debt consolidation loan of $10,000 with an origination fee of 5%. You would get $9,500 in your bank account, but pay off the loan as if the balance was $10,000.

Please be sure to review the truth in lending disclosure to confirm how the origination fee is taken from your loan. For example, I have heard of lenders that may add the origination fee on top of the loan amount, which may not be in your best interests.

Your monthly payment can be high

One of the challenges is that the debt consolidation monthly payment may be more expensive than your minimum monthly payments.

Let’s say you have a total of $50,000 in credit card debt and are paying 1% each month for a total of $500. Your monthly payment on a $50,000 36-month loan could be well over $1,500 per month, which is $1,000 more than what you were paying off on your credit cards.

You may not save money on all of the debt you consolidate

This disadvantage is one of the least understood cons of debt consolidation. Let’s say you have debt that has a mix of interest rates, so a debt consolidation loan may not save you money on all of your debts. 

Let’s take a look at the following example.

  1. Credit Card 1 = 29.99% interest rate, Balance = $5,000
  2. Credit Card 2 = 22.99% interest rate, Balance = $10,000
  3. Credit Card 3 = 18.99% interest rate, Balance = $5,000
  4. Credit Card 4 = 12.99% interest rate, Balance = $10,000
  5. Credit Card 5 = 7.99% interest rate, Balance = $10,000
  6. Credit Card 6 = 0% introductory interest rate, Balance = $5,000

Let’s say you qualify for a debt consolidation loan for $45,000 at an interest rate of 13.99% with an origination fee of 5%. 

Unfortunately, you may not save money on all of the debt if you take this option because the 13.99% interest rate is higher than the credit card with a 7.99% interest rate. You would also need to consider the origination fee will decrease some of your savings.

You may not have addressed the root cause of the debt

A debt consolidation loan can save you money, get you on a fixed payment plan, and get you out of debt faster, but it may not solve the original root cause of debt if you got into debt because of spending habits.

For example, I have seen time and time again when an individual takes out a debt consolidation loan but doesn’t pay off all of the debt and then continues to accumulate debt on credit cards, leading the individual to financial hardship and potentially bankruptcy.

That being said, many people accumulate debt for unforeseen circumstances such as job loss or medical challenges, so spending behavior is not a problem.

You may face lower payment flexibility if you face financial hardship

When many individuals take out a debt consolidation loan, they do not consider they will face financial hardship. If a financial hardship such as a job loss or divorce happens, a loan provider may be less flexible than a credit card issue as a debt consolidation loan is fixed installment credit. Thus, it can be more difficult to extend the life of a loan. As such, many credit counseling agencies will not take personal loans when helping individuals. 

Your credit report will have a new hard credit pull

While your credit score could ultimately improve, your credit score could decrease in the first month due to the creditor pulling a hard credit check. A hard credit check is one of the factors that contribute to your credit score and is seen by other lenders whereas a soft credit check is not.

While this is not a major con, it is an important factor to know when considering a debt consolidation loan as many lenders pitch that your credit score will not be affected when checking your rate. That said, your credit score may be negatively affected when you accept the rate presented.

If you for whatever reason accept the loan and then do not end up taking the loan, your credit score may keep the negative effects of that hard credit pull.

Let’s Summarize

A debt consolidation loan can provide an avenue to get out of debt faster and save money in the process. That said, you have to consider that you’ll pay an origination fee, your monthly payment may be higher than your credit card minimum payments, and you may not have addressed the root cause of the debt. 

When deciding whether to get a debt consolidation loan, hopefully, this list of pros and cons of debt consolidation can help you make the most informed decision. Please comment if you have any questions or anything. Thanks!



Note: This is a post from Joan Concilio, Man Vs. Debt community manager. Read more about Joan.

Since I shared my report from the three-year mark of my battle against debt, I’ve been amazed at the kind words from so many members of the Man Vs. Debt community. From comments to Twitter messages to emails, it’s really reaffirmed my commitment to pushing forward and – even if it’s more eventually than I’d like – ending up debt-free and staying that way for life.

That said, opening up about my slower-than-expected progress has also forced me to re-evaluate where I am, and whether what I’m doing is really in keeping with my truest desires financially and personally.

As I was preparing to write today’s Man Vs. Debt post, I kept finding myself drawn to a post of Baker’s from several years ago, Discovering Your Financial Priorities. I hope you’ll make time to read that, because it’s really the basis for what I’d like to do – and challenge you to do – today.

I need to refocus on what matters most to me. I’m making progress, but sometimes it’s not in the areas that really hit home with me. I’m hustling for extra money, but that cash is just going toward the bills and odds and ends of needs here and there, not really packing the punch I’d like.

I’m doing the right things, but not quite with the right mindset. And from the comments I’ve received since admitting how much I’m struggling, I know that I’m not alone in feeling a little adrift.

So let’s take the first step toward changing that. Let’s set some financial priorities, Man Vs. Debt-style. I’ll list mine, and I hope you’ll be thinking about your own so you can jump in and share in the comments!

1. Keep the bills caught up.

This has not been a problem in years for me, and I’m more happy about that than I can say. HOWEVER. I’ve been there, the juggling-late-bills dance, and I need to be sure not to forget how awful that felt. I need to make sure that this stays an articulated priority, so that I don’t get back to the really behind point. For us, this means not only having enough money to cover our regular expenses, but also having a decent buffer in the checking account for when “paydays” – sometimes irregular in freelancing – don’t line up with due dates.

2. Provide for needs and moderate wants for my family.

For us, most of this comes by way of food. I will tell you flat-out that we spend more on groceries than we “need” to. My husband, Chris, is a vegetarian; I have several food allergies; and we have other dietary considerations for other family members. Some of these are needs, while others are just preferences, but they’re preferences that are my personal priority to meet. This also stretches to include things like our Netflix subscription, occasional restaurant meals and movies, trips to the arcade, and so on. They’re wants – not large-scale ones like a 90-inch TV, but moderate ones that we value enough to include in our budget. Our house is another related area. It’s not the tiniest, but it works for our not-the-tiniest collection of humans and pets, and it’s a priority in our budget to keep it.

3. Have all the healthcare.

I don’t have much to say about this, except that I took a full-time job that pays LESS than I was making freelancing full-time so that I could have health insurance. It’s a priority for me. This also extends out from the needs/moderate wants category; for instance, I choose to spend a relatively small but not insignificant amount of money on fitness, because it’s important to my overall health and well-being.

4. Maintain an emergency fund.

In the past six months, this fund has meant the difference between “yes, we can afford to live in our house” and “no, we really can’t.” It’s vital. And we’ve managed to replenish it every time we’ve knocked it down in the past few years, which is amazing. But it needs to remain a priority that I remind myself of, because it sometimes feels like it’d be so easy to use that cash for something else.

5. Pay down debt and avoid new debt.

Interestingly, when I think about my real feelings about debt, I realize that fifth place is just the right spot on my priority list. It is a priority – but it isn’t THE TOP priority. I sincerely want to become debt-free, and I intend to stay that way for life. At the same time, there are tradeoffs I know I would make. I would go into debt to get medical care for myself or my family (and, actually, that’s the cause of about 90% of the debt I brought into our marriage anyway!) I  would just pay the minimums on my credit cards for a while to keep the bills current. I would take on a car payment temporarily to ensure that I have a working vehicle. At the same time, any money I have once the goals above are met WILL go toward debt repayment, and the end result, no matter how long it takes, is going to be the flexibility that comes from being truly debt-free.

What these priorities have made me realize

Here’s the thing. When I stopped and wrote down what REALLY matters most to me, I’m actually making more progress than I realized!

It turns out that while debt repayment is still a priority for me, it’s not my top priority – and so, while I’ll continue to push at it, I’m going to take a step back and celebrate the fact that, despite a drop in income in our family of more than 50% for the past five months or so, I AM meeting my financial goals!

Because I was hung up on just one goal – the debt-payoff progress, and my frustration that it hasn’t been going faster – I had been feeling defeated. Because I was only “holding steady,” I wasn’t finding anything to celebrate.

Now, I realize how thrilled I am to look back at the past few months and realize, “HEY. I kept food on the table! I kept a roof over our heads. And I did it without increasing my consumer debt!”

I AM making progress.

I AM meeting my financial goals.

I AM living in keeping with what my true priorities are (once I bothered to make them clear to myself!)

What about you? What are your priorities – and once you’ve listed them, are you actually using them as the scale you measure yourself against, or are you trying to compete in a different race?

I’d really love to hear your thoughts in the comments.



Note: This is a post from Joan Concilio, Man Vs. Debt community manager. Read more about Joan.

It’s official: I’ve been tracking my debt for exactly three years.

While I didn’t post my first financial update on Man Vs. Debt until a year later, I first sat down and wrote my detailed list of debts – the one you see listed on my Joan’s Finances page – on April 14, 2011.

Taking inventory and facing what I owed was one of the hardest things I’ve ever done, but the effect it’s had since then has been nothing short of amazing.

[So what’s our total paid off, three years in?]



Note: This is a post from Joan Concilio, Man Vs. Debt community manager. Read more about Joan.

You guys are going to think I spend my Sunday afternoons watching America’s best not-exactly-a-sport sports, between today’s post and the one from last month about 4 Personal-Finance Lessons from NASCAR!

I spent THIS Sunday watching… you guessed it… WrestleMania 30, thanks to my roommate’s subscription to the WWE Network, which I admit I watch with rather startling frequency.

The funny part is, while I’ve enjoyed professional wrestling since I was in high school, I’d never spent any time – or money – on it since. Until WWE Network came out in late February.

And now, even more than the wrestling itself, I’m fascinated with the business decisions behind the plan. The WWE Network business model is forward-thinking, audience-focused and designed for growth – key lessons that entrepreneurs and side hustlers can really learn from!

[Is your business doing what makes WWE so awesome?]



Note: This is a post from Joan Concilio, Man Vs. Debt community manager. Read more about Joan.

Two summers ago, while visiting an art museum in Washington, D.C., we came upon an exhibit in the process of being installed. Huge letters and swaths of red, black and white covered every square inch of wall and floor.

When I saw it, I took the photo above, hoping it would serve as a reminder to go back and see the finished exhibit and revisit the phrases plastered throughout.




And while I haven’t gotten back to see the final installation of Belief+Doubt (I hope to – it’s on display through the end of this year!) … the phrases have stuck with me, and I’m reminded of them at the weirdest times.

[Like when I look in my closet and wonder…]



julian-100Julian Hayes II is a fitness and lifestyle coach and writer based out of Nashville, Tennessee. He is the creator of 206 Fitness. Why 206? Not only is 206 one of his nicknames, but there are also 206 bones in the body. He believes anyone can achieve the body they’ve always wanted while still living a fun and adventurous life. Read more about him and download his free ebook on how to achieve the body you’ve always wanted while owning life at and connect with him on Facebook & Twitter.

I am $42,000 in debt and I’m absolutely loving life right now.

Yes, you read that correctly.

$42k in debt.

To the majority of people, this sounds like an insanely large amount of money.

Except me.

Seriously, this is nothing to me.

[Allow me to explain…]