How a debt consolidation loan works
A debt consolidation loan is a personal loan you use to pay off other debts, most often credit cards. Instead of several balances with different due dates and variable rates, you have one fixed monthly payment and a set payoff date, usually between 12 and 36 months for small loans.
Credit card interest is charged on whatever balance you carry, and card APRs are variable, so they rise when the prime rate rises. A fixed-rate installment loan locks in the rate on the day you sign. Every payment covers that month’s interest plus part of the principal, so the balance reaches zero on schedule.
Consolidation is the most common reason people take out personal loans. In a 2025 survey of 1,000 recent borrowers, 25% said they borrowed to consolidate debt, and about 70% of those used the money to pay off credit cards (SoFi survey; SoFi is a lender).
The one rule that matters: consolidating saves money only when the new loan’s APR, including any origination fee, is lower than the APR on the debts you’re paying off, and you don’t stretch the repayment out much longer.
The 2026 numbers behind consolidation
These are the latest national figures. Your own rates depend on your credit, income and the lender.
Average APR on credit card accounts charged interest at commercial banks, August 2026.
Federal Reserve G.19Average APR on a 24-month personal loan at commercial banks, August 2026.
Federal Reserve G.19The gap between the two averages, which is the room consolidation has to save you money.
Calculated from Fed G.19Total U.S. credit card balances in Q2 2026, up $54 billion from a year earlier.
New York Fed, Q2 2026Unsecured personal loan balances in Q2 2026, a record and up 9.6% from a year earlier.
TransUnion, Q2 2026Share of personal loan borrowers 60+ days past due in Q2 2026, up from 3.37% a year earlier.
TransUnion, Q2 2026Bank averages describe borrowers who qualify for bank loans. Online offers vary more with credit. In Q4 2025 marketplace data, average best-offer APRs ranged from 12.15% for scores of 800 or higher to 29.05% for scores under 580 (LendingTree). That spread is why the same consolidation plan can save one person hundreds of dollars and cost another person more.
When consolidation saves money, and when it doesn’t
Likely to save
- Your loan offer APR is clearly below your card APRs
- The loan term is about as long as it would take you to pay the cards
- No origination fee, or a small one
- You have a plan to keep the cards paid off
Likely to cost more
- The loan APR is at or above your card APR
- You stretch a 2-year payoff into 3 years for a lower payment
- A large origination fee pushes the true APR up
- The cards fill back up after you pay them off
The last point is the one that hurts most. If you run the cards back up, you end up with the loan payment and new card balances. A consolidation loan works best as part of a plan, not as extra borrowing room.
Worked example: $3,000 of credit card debt
Say you owe $3,000 across two cards at the national average of 22.36% APR. We compared a consolidation loan with paying the same monthly amount directly on the cards, so the only difference is the rate.
| Loan | Payment | Loan interest | Card payoff | Card interest | Difference |
|---|---|---|---|---|---|
| 15.54% · 24 mo | $146.23 | $509.54 | 27 mo | $682.92 | Save $173.38 |
| 24.99% · 24 mo | $160.10 | $842.39 | 24 mo | $607.15 | +$235.24 |
| 35.99% · 24 mo | $177.13 | $1,251.03 | 21 mo | $557.46 | +$693.57 |
| 24.99% · 36 mo | $119.26 | $1,293.49 | 35 mo | $997.40 | +$296.09 |
15.54% is the Q4 2025 average best offer for scores of 740–799 (LendingTree); 35.99% is the maximum APR in our network. Against cards at 22.36%, only the lower-rate loan comes out ahead. A “+” means the loan costs more in interest than paying the cards.
If your cards charge more than average
Many cards charge well above the national average. If the same $3,000 sits on cards at 29.99%, a 24-month loan at 24.99% ($160.10 a month) costs $842.39 in interest, while the same payment on the cards takes 26 months and $1,032.32 in interest. The loan saves about $189.93. At 15.54%, the saving grows to about $621.57.
Find your break-even: pull your latest statements and look for the “Annual Percentage Rate” on purchases. Any loan offer with a lower APR and a similar term should save money. Our consolidation calculator runs your exact balances.
How fees and longer terms change the math
Origination fees
Some lenders deduct an origination fee from the loan before you receive it. To clear $3,000 of cards with a 5% fee, you would need to borrow about $3,157.89. At 24.99% over 24 months, that’s $168.53 a month, $1,044.62 in total cost, and a true APR of about 30.51% on the $3,000 you actually receive. Always compare the APR, which includes the fee, rather than the interest rate.
Longer terms
A longer term lowers the monthly payment but adds months of interest. In the table above, moving from 24 to 36 months at 24.99% cuts the payment from $160.10 to $119.26 but raises total interest from $842.39 to $1,293.49. Choose the shortest term whose payment you can reliably make.
Prepayment
Many personal loans let you pay early without a penalty, which can cut interest further. Check the loan agreement for a prepayment clause before you sign.
A step-by-step consolidation plan
- List every debtWrite down each balance, APR and minimum payment from your latest statements. Include store cards and buy now, pay later plans.
- Find your break-even APRNote your highest and average card APR. A loan only saves money if its APR, including fees, is lower.
- Choose a term you can affordPick the shortest term with a payment that fits your budget after rent, utilities and food. Our payment calculator shows the trade-off.
- Compare offers by APR and total costRequest offers and compare APR, origination fee, monthly payment and total repaid. Lenders must disclose the APR and total cost before you sign under the Truth in Lending Act.
- Pay off the cards right awayUse the funds to pay each card in full the day they arrive, or let the lender pay creditors directly if that option is offered.
- Stop new balancesSet up autopay on the loan. Keep the cards open if you like, but take them out of your wallet and saved payment settings.
Alternatives to a consolidation loan
0% intro APR, if you qualify
Transfer fees typically cost 3% to 5% of the amount moved (NerdWallet), so $90 to $150 on $3,000. Works if you can repay before the promotion ends.
Through a nonprofit counselor
A plan is not a loan. NFCC member agencies may be able to lower your interest rates and combine payments, at no or low cost (NFCC).
Pay down cards yourself
Pay minimums on every card and put extra toward either the highest-APR card (saves the most interest) or the smallest balance (fastest wins).
Ask your card issuer
Many issuers offer temporary lower rates or payment plans if you call before you fall behind. Ask what it does to your account and credit.
Why debt settlement is different, and risky
Debt settlement companies try to get creditors to accept less than you owe. That is not consolidation, and the CFPB warns about several risks (CFPB):
- You’re often told to stop paying your cards while you save, so late fees and penalty interest can grow the debt.
- Creditors may sue you while you’re saving for a settlement.
- Your credit scores can drop, affecting your ability to borrow later.
- Forgiven debt may be taxable income on your federal return.
- Avoid any company that charges fees before it settles your debts.
Watch for scams. The FTC warns that a lender who guarantees a loan or asks for a fee before you receive it is likely running an advance-fee scam. Learn the warning signs.
Pros and cons of a debt consolidation loan
Pros
- One fixed payment and a clear payoff date
- Can cost less than card interest when the APR is lower
- Fixed rate doesn’t rise with the prime rate
- Paying off cards can lower your credit utilization
Cons
- Saves nothing if the APR isn’t lower than your cards
- Origination fees raise the true cost
- Longer terms add interest
- Cards can fill back up if habits don’t change
Debt consolidation FAQ
Does a debt consolidation loan hurt my credit?
Applying usually starts with a soft check that doesn’t affect your score. If you accept an offer, the lender may run a hard inquiry, which can lower your score slightly for a short time. Paying off revolving card balances can lower your credit utilization, and on-time loan payments add to your payment history.
When does consolidating actually save money?
When the loan’s APR, including any origination fee, is lower than the APR on the debts you’re paying off, and you don’t stretch the term much longer. In our $3,000 example, a 15.54% loan saved about $173 against a 22.36% card, while a 24.99% loan cost about $235 more.
Should I close my credit cards after consolidating?
Not necessarily. Closing a card reduces your available credit, which can raise your utilization. Many people keep the oldest card open with a zero balance and remove it from their wallet and online shopping accounts.
Can I consolidate debt with fair credit?
Some lenders work with fair credit, but offers are more expensive. In Q4 2025 marketplace data, the average best-offer APR was 25.78% for scores of 580–669, above the average card APR of 22.36%. In that case a nonprofit debt management plan may be the better route.
What’s the difference between debt consolidation and debt settlement?
Consolidation replaces several debts with one new loan you repay in full. Debt settlement tries to get creditors to accept less than you owe, usually after you stop paying, which can damage your credit, lead to lawsuits and create taxable forgiven debt, according to the CFPB.
How much can I consolidate through Riverstone?
You can request from $200 to $5,000 with terms of 3 to 36 months. Lenders in our network decide whether to make an offer and on what terms. Riverstone is a marketplace, not a lender.
Is a balance transfer card better than a loan?
It can be if you qualify for a 0% intro APR and can repay the balance before the promotion ends. Transfer fees typically run 3% to 5% of the amount moved. If you can’t clear it in time, the remaining balance moves to the card’s regular APR.
- Federal Reserve, G.19 Consumer Credit, Oct 7, 2026
- Federal Reserve Bank of New York, Household Debt and Credit, Q2 2026
- TransUnion, Q2 2026 Credit Industry Insights Report, Aug 6, 2026
- LendingTree, marketplace data, Q4 2025
- SoFi, Real Borrowers, Real Reasons survey, April 2025
- NerdWallet, What is a balance transfer fee?
- National Foundation for Credit Counseling, debt management plans
- CFPB, What is debt settlement?
- FTC, What to know about advance-fee loans
Examples are calculated by Riverstone for fixed-rate, fully amortizing loans with on-time payments, and compare paying the same monthly amount on cards with a constant APR and no new charges. They are illustrations, not offers.