Question 1

How does debt consolidation work?

Accepted Answer

Debt consolidation combines multiple debts into a single loan with one monthly payment. You take out a new loan for your total debt amount, use it to pay off all existing debts, then make fixed monthly payments on the new loan. The goal is to get a lower interest rate and a clear payoff timeline.

Question 2

What is an origination fee and why does the loan amount increase?

Accepted Answer

An origination fee is a one-time charge by the lender (typically 1-8% of the loan). Since lenders deduct this fee from loan proceeds, you need to borrow more than your total debt. For example, to pay off $10,000 with a 5% fee, you'd need a $10,526 loan — the lender takes $526 as the fee and disburses $10,000 to pay your debts.

Question 3

When does debt consolidation NOT make sense?

Accepted Answer

Consolidation may not help if: (1) the new loan APR is higher than your current average rate, (2) you extend the term so much that total interest exceeds current costs, (3) you qualify for a 0% intro APR balance transfer card and can pay off within the intro period, or (4) you have a small balance that you can aggressively pay off in a few months.

Question 4

How are credit card minimum payments calculated?

Accepted Answer

Most US credit card issuers calculate minimum payments as the monthly interest charge plus 1% of the outstanding balance, with a $25 floor. As your balance decreases, so does your minimum payment — which is why credit cards can take decades to pay off with minimums alone.

Question 5

What credit score do I need for a consolidation loan?

Accepted Answer

Most lenders require a credit score of 580-670+ for consolidation loans. Higher scores (700+) get significantly better rates — often 7-12% APR vs 18-30% for lower scores. Check pre-qualification offers (soft credit pull) from multiple lenders before applying.

Question 6

Should I consolidate or use the Avalanche/Snowball method?

Accepted Answer

Consolidation is best when you can get a meaningfully lower rate on the new loan. The Avalanche method (paying extra toward highest-rate debt first) can be better if you have the discipline to make extra payments. Try our Debt Payoff Planner to compare strategies.

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