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Debt consolidation can be a smart strategy to reduce how much you pay in interest. However, your ability to save depends heavily on your credit score. If your score is strong, you may qualify for a lower interest rate and lower your total debt costs. If not, consolidation could cost you more in the long run.
Key Takeaways
- Your credit score directly affects your interest rate, which determines whether debt consolidation will save you money.
- Higher credit scores typically qualify for lower rates, increasing your potential savings.
- Lower credit scores may result in high interest rates, eliminating any benefit from consolidating.
- Improving your credit score before applying may increase your chances of securing a favorable rate.
What Are You Paying Now?
To evaluate whether debt consolidation will save you money, start by understanding what you’re currently paying.
For example, let’s say you have a $10,000 credit card debt with a 24.25% APR that you want to pay off. If you only make a payment of $327.40 for 48 months, you’ll pay $5,715.30 in interest, bringing your total repayment to $15,715. (Try a loan calculator to compare different scenarios.)
Consolidating high-interest rate debt into a new loan with a lower fixed interest rate can reduce your monthly payment and the total interest you pay over time. This can also provide immediate cash flow relief.
Important
If you’re making minimum payments on high-interest rate credit cards, most of your payment goes toward interest, not the balance.
What Rate Can You Get?
Your credit score is a key factor in determining your interest rate on a debt consolidation loan or balance transfer credit card. Generally, the higher your credit score, the lower interest rate you’ll receive. According to an Investopedia analysis of May 2025 data:
| Credit Score Range | Average Personal Loan APR |
| Excellent (720+) | 19.02% |
| Good (660-719) | 26.07% |
| Fair (620-659) | 30.04% |
| Poor (<620) | 30.62% |
For credit cards used to consolidate debt, average interest rates also vary:
- Bad/Fair Credit: 27.52%
- Good/Excellent Credit: 23.33%
The average for all debt consolidation cards is around 22.11% APR.
Do the Math
Let’s compare the total costs of two scenarios using the same $10,000 debt over a 48-month term:
| Consolidation Loan | Paying Down Debt | |
| APR | 19.02% | 24.25% |
| Monthly Payment | $299.11 | $327.40 |
| Term | 48 months | 48 months |
| Total Interest | $4,357.12 | $5,715.30 |
In this example, consolidating would save $1,358.18 in interest and lower your monthly payment by $28.29, making it less expensive to get out of debt. The higher your current APR–and the lower rate you qualify for–the more you stand to save.
Warning
Consolidating could cost you more if you’re offered a higher-rate loan. This can happen if you have a low credit score. Also, be sure to include any loan origination or other fees in your cost comparison.
The Bottom Line
Debt consolidation is only financially beneficial if you can secure a lower interest rate than you’re currently paying. Your credit score is the main factor that determines whether that’s possible. Before applying, check your credit score to understand your potential range. Prequalify with multiple lenders to compare offers without affecting your credit. If needed, take time to improve your credit to increase your chances of locking in a better interest rate.
