Debt & Credit

Should You Consolidate? — Debt Consolidation Explained

Consolidation is a tool, not a solution. Used correctly, it reduces the cost of debt. Used incorrectly, it delays the reckoning and adds fees.

Debt · Worthune

Should You Consolidate?

Debt consolidation can save thousands. It can also extend the problem.

Consolidation is a tool, not a solution. Used correctly, it reduces the cost of debt. Used incorrectly, it delays the reckoning and adds fees.

$4,200average interest saving from a well-executed debt consolidation

The Situation

When Consolidation
Helps vs Hurts

Consolidation helps when it reduces your weighted average interest rate, simplifies your payment structure, and is paired with a commitment to not accumulate new debt. It hurts when it extends the repayment period, carries high fees, or is used as a substitute for addressing the spending behaviour that created the debt.

"Consolidation is a rate arbitrage tool. It only works if the new rate is genuinely lower and the old accounts are closed."
Worthune Editorial

You carry multiple high-interest debts with different payment dates and rates
You have received offers for balance transfers or personal loans to consolidate
You are unsure whether consolidation would genuinely save money or just simplify payments

About This FinBook

Debt consolidation can save thousands. It can also extend the problem. Learn the framework for evaluating whether consolidation is the right move for your situation.

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