Debt consolidation: loans, balance transfers and home equity compared
Updated November 9, 2026
Debt consolidation rolls several debts into one payment, ideally at a lower interest rate. It doesn't reduce what you owe, so it helps only if the new rate and fees cost less than what you pay now, and only if you stop adding new debt to the cards you paid off.
Ways to consolidate
| Option | What it costs | Credit you need | Main risk |
|---|---|---|---|
| Balance transfer card | Often 0% for 12 to 21 months, plus a 3% to 5% fee | Good | A high rate on what's left when the 0% ends |
| Consolidation loan | A fixed rate based on your credit, sometimes an origination fee | Fair to good | A rate no better than your cards |
| Home equity loan or line | A lower rate, plus closing costs | Enough equity in your home | Your home secures the debt |
| 401(k) loan | Lost investment growth | No credit check | Taxes if you leave your job and can't repay in time |
| Nonprofit debt management plan | A small monthly fee | No credit check | Your cards are usually closed |
A debt management plan isn't a loan. A nonprofit credit counseling agency gets your card companies to lower their rates, and you repay the full balances through one monthly payment. Our guide to debt management plans and bankruptcy explains how it works.
Check the math first
Compare the full cost of the new option, fees included, with what you'd pay in interest if you kept going as you are. A 5% transfer fee on $10,000 is $500, which is worth paying only if you'd save more than that before the 0% rate ends.
- Our balance transfer calculator shows what you'd save after the fee.
- Our debt consolidation calculator compares your current payments with one loan.
- Lenders check your debt-to-income ratio before they approve a loan, and our debt-to-income calculator works it out the same way.
A longer loan can lower your monthly payment even when it costs more in total, so compare the total cost as well as the payment.
Think twice before using your home
A home equity loan or line of credit usually has a lower rate than a credit card, but it turns debt that isn't tied to anything into debt secured by your home. If you fall behind on a credit card, the card company can sue you. If you fall behind on a home equity loan, the lender can foreclose.
Where you live can make that trade-off bigger. Florida, Iowa, Kansas, Oklahoma and Texas protect the home you live in from card creditors with no dollar limit, only a limit on the size of the land. In those states, moving card debt into a home equity loan gives up protection your home already had.
Our home equity consolidation calculator compares your debts as they are with paying them off from a home equity line, and your state page shows what your state protects.
The same goes for retirement savings. 401(k)s and IRAs are protected from most creditors and in bankruptcy, so using them to pay off cards can mean spending money a creditor could never have taken.
When consolidation isn't the answer
- Your credit is already damaged. You may not qualify for a rate that beats what you pay now. A debt management plan can lower card rates without a credit check.
- The payment still isn't affordable. If one payment at a lower rate still doesn't fit your budget, look at debt settlement or bankruptcy.
- Some of the debts are old collection accounts. Check your state's time limit before you pay them off with new credit. A collector can't sue you over a debt that's past the limit, but a lender can sue over a new loan you used to pay it.
- A company calls it consolidation but tells you to stop paying your creditors. That's a settlement program, not a consolidation loan. Ask whether you're getting a loan, a debt management plan or a settlement program before you sign anything.