The average American carries $6,500 in credit card debt at 21-27% APR interest rates. At minimum payments, paying off a $10,000 balance takes 25+ years and costs over $12,000 in interest alone. Debt consolidation can collapse that timeline to 3-5 years and save thousands.
What Is Debt Consolidation?
Debt consolidation combines multiple high-interest debts into a single, lower-interest payment. Instead of juggling five credit card bills at 20-28% APR, you make one payment at 6-12% APR. The math is straightforward: lower interest means more of each payment goes toward the principal balance.
Best Debt Consolidation Methods
Personal Loans — Best for Large Balances
Debt consolidation personal loans offer fixed rates from 5.99-15.99% APR depending on your credit score. For someone with $20,000 in credit card debt at 24% APR, consolidating into a personal loan at 8% APR saves approximately $8,400 in interest over a 4-year repayment term.
Top lenders include SoFi (5.99-23.43% APR, no fees), LightStream (5.99-19.99% APR, no fees), and Marcus by Goldman Sachs (6.99-24.99% APR, no fees). All three offer fixed rates with no origination fees.
Balance Transfer Credit Cards — Best for Smaller Balances
For debt under $10,000, a 0% APR balance transfer card can be the cheapest consolidation method. Cards like the Citi Simplicity and Wells Fargo Reflect offer 0% APR for 21 months on balance transfers. The typical 3-5% transfer fee is far cheaper than credit card interest.
The key is paying off the entire balance before the 0% period ends. Divide your total balance by the number of promotional months to determine your required monthly payment. If you can’t pay it off in time, the remaining balance reverts to the card’s regular APR of 20%+.
Home Equity Loans — Best Rates (If You Own a Home)
Homeowners can tap equity for debt consolidation at rates between 6-9% APR. Home equity loans and HELOCs offer the lowest rates because your home serves as collateral. However, this means your home is at risk if you can’t make payments. Only use this option if you’re confident in your repayment ability.
The Debt Avalanche vs. Debt Snowball
If consolidation isn’t right for your situation, two popular DIY strategies can accelerate debt payoff. The debt avalanche method targets the highest interest rate debt first, saving the most money mathematically. The debt snowball method targets the smallest balance first, providing psychological wins that maintain motivation.
Research shows the snowball method leads to higher completion rates despite costing slightly more in interest. Choose the method that you’ll stick with consistently.