How does debt consolidation work?
A consolidation loan moves chosen debts into a new loan. It does not erase what you owe.
Page summary
The new lender sends money to you or your creditors to pay selected debts. You then repay the loan. A fee can leave less cash for payoffs. Keep paying each old bill until its creditor confirms the payoff; any balance left still needs payments.
Cash after fees must cover the payoffs
If a fee comes out first, you may need a larger loan to cover the payoffs.
- Total the debts. Add only the unsecured balances you plan to replace.
- Account for the fee. Gross up the loan when a deducted fee would leave the payoff short.
- Confirm zero balances. Check each old account after the payoff posts.
Source: CFPB: Consolidating credit-card debt.
New card charges add debt beside the loan
One due date may be easier to track.
New charges can rebuild the balances beside the loan.
Decide how to use paid-off cards
Choose whether each card stays open, gets locked, or closes based on budget risk and account terms.
It may fit when
- The loan costs less in all, with fees included.
- The payment fits your normal budget.
- The balances are paid off and stay paid off.
Pause when
- The rate savings do not cover the fee.
- The lower payment comes only from a much longer term.
- You need debt relief because the payment still does not fit.
Questions before you decide
Can the lender pay creditors directly?
Some lenders may. Read the offer and confirm when each payoff posts.
Can I consolidate only high-rate debts?
Yes. Compare the selected debts with the new fee and payment.
What if the fee leaves a shortfall?
You need a larger gross loan or cash to finish the payoff. Model that before signing.
Is a consolidation loan a personal loan?
It is usually a personal installment loan used for the purpose of paying other debts.
Check the cash that reaches your creditors
A fee taken from the loan can leave a debt unpaid. Use the loan’s cash after fees to check the payoffs. Our dated research sample gives context; it does not predict an offer or approval.
Check whether the new schedule costs less
The mechanism is simple. The fee, term, and payment decide whether it helps.
Sources and method
Sources checked August 28, 2026. See our editorial policy for how we check the work.
Read the sources and limits
- CFPB: Consolidating credit-card debt. Loan, balance-transfer, fee, term, and recurring-debt risks.
- CFPB: Personal installment loans. Closed-end loan mechanism, terms, and missed-payment risk.
- CFPB: Personal-loan fees. Origination and other charges that can change the consolidation result.
The cost tool compares fixed payments with no new charges. Your agreement sets the fees and payoff rules. The result does not predict a credit score or approval.