The short answer

Compare total cost, not just the monthly payment or the headline rate: add up every dollar of interest and fees you'd pay under each option until the debt is gone. A consolidation loan saves money when its total cost is lower, which depends on its rate, any origination fee, and how long you'd take to repay it either way.

Why the monthly payment alone is misleading

A consolidation loan can lower your monthly payment simply by stretching the term longer, not because the deal is better. A lower payment over 60 months can cost more in total interest than a higher payment over 36 months, even at a lower rate. The number to compare is total cost from today until the balance hits zero, not the payment amount on its own.

What to add into the total cost

Start with the interest you'd pay on your current debts if you kept them as is. Then add up the interest on the proposed loan, plus any origination fee, which is often a percentage of the loan added to the balance you borrow. A fee that looks small as a percentage can still be a few hundred real dollars once it's rolled into what you're financing.

  1. Write down each current balance, its APR, and what you're actually paying toward it each month.
  2. Get the loan's exact APR, term in months, and any origination fee in dollars, not just a percentage.
  3. Estimate total interest on your current debts at your current payment pace.
  4. Estimate total interest on the loan, including the fee added to the amount borrowed.
  5. Compare the two totals directly. The lower one is the cheaper path, regardless of which has the smaller monthly payment.

Where people get this comparison wrong

The most common mistake is comparing the loan's rate to a single card's rate instead of to the blended rate across everything being paid off. If one card is at 26% and another is at 14%, the loan should be compared to something closer to the weighted average of both, based on how much you owe on each, not to just the higher or lower number.

When consolidation tends to actually help

It tends to help when your current rates are meaningfully higher than the loan's rate, the fee is small relative to the balance, and you keep the term close to what you'd have paid off in anyway. It tends not to help when the term stretches out so far that lower monthly interest gets outweighed by simply paying interest for more months.

Worked example · illustrative numbers

Example: comparing total cost

Say your current cards add up to $5,000 at a blended rate of about 22%, and you're paying $150 a month toward them. Simulated month by month, that takes about 52 months and costs roughly $2,798 in interest.

A consolidation loan for $5,150 (the $5,000 balance plus a $150 fee) at 14%, paid at $180 a month, would take about 36 months and cost roughly $1,153 in interest. In this hypothetical, the loan finishes 16 months sooner and costs about $1,645 less in interest, mainly because the rate drop is large and the fee is modest.

Put this into practice with Debtless

Debtless can't tell you whether a specific loan offer is a good deal, since it doesn't pull rates or fees from any lender. Once you have real numbers for a loan, you can enter it as a debt and see how its projected payoff date compares with keeping your current accounts as they are.

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Common questions

Does a lower APR always mean I'll pay less overall?

Not automatically. A lower APR paired with a much longer term can still cost more in total interest than a higher APR paid off faster. Always compare total cost across the full term, not the rate by itself.

Should I count the origination fee as part of the loan or as a separate cost?

Count it as part of the loan if it's rolled into the amount you borrow, since you'll pay interest on it too. If you pay the fee separately out of pocket, add it to your total cost calculation either way.

What if the lender won't give me exact numbers before I apply?

Ask for a written estimate of the APR, term, and any fees before you commit. A lender unwilling to share those details in writing makes it hard to compare honestly, which is itself worth treating as a caution sign.

Sources & further reading

General education for U.S. readers, not individualized financial, legal or tax advice. Examples are hypothetical; lender terms and actual interest calculations can differ. Check your current statements and agreements.

Published by Debtless with AI-assisted drafting. How this journal is made · Suggest a correction