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If you're juggling multiple debts and feeling overwhelmed, you’re not alone. In fact, 44% of Americans report having more debt than they are comfortable with, according to the 2024 Wells Fargo Money Study.* One strategy that can help make managing debt easier is debt consolidation. When you consolidate debt, you pay off multiple loans with one new loan, hopefully with a lower interest rate or more manageable terms. Doing so may give you more breathing room in your budget, and you may find you can reach other financial goals faster with the money you save.
Debt consolidation can simplify things, reducing the number of bills you have to juggle. It can also reduce your credit utilization ratio, which can give your credit score a boost. That said, it’s not for everyone. Before choosing to consolidate your debt:
Take inventory of your debt
As you weigh whether debt consolidation is right for you, take inventory of your debt. Start by making a list of each or your loans and credit card balances, including outstanding balances, interest rates, and monthly payments. Credit cards are a common form of debt to consolidate because they typically carry higher interest rates. Additional debt may include personal loans, student loans, or medical bills. Total your outstanding balances and monthly payments. Next, check your credit score and calculate your debt-to-income ratio to gain a deeper understanding of where you stand.
Explore your options
Once you have a handle on how much you owe, you can begin the search for loans that will cover your existing debts:
Personal loans are commonly used to consolidate debt. They are typically an unsecured loan that doesn't require you to put up some form of collateral, like your home or car, which the lender can take if you don't repay the loan. Some lenders may offer secured options with slightly lower interest rates, though keep in mind that secured options may require you to offer collateral that you're at risk of losing if you don't pay your loan on time.
Wells Fargo customers can use the Check My Rate tool to get personalized rate and payment estimates with no impact to their credit score. Funds are often available the next business day, if approved.
Once you've been approved for a loan, the new funds can pay off your existing debt and you can start making one monthly payment.
Know before you borrow
Debt consolidation isn't for everyone. It's important to remember that you’re not eliminating your debt, you’re restructuring it. You can use a debt consolidation calculator to look at the total cost of your current debt and a consolidation loan. You also need to compare interest rates — there’s no guarantee a personal loan will offer lower rates than the debt you already have.
Pay close attention to the total cost of borrowing, including fees and hidden costs. For instance, if you consolidate to a new loan with a longer term, your monthly payment may be smaller, but you may end up paying more in interest over the life of the loan. Consider other payoff strategies that may work better, especially if the total cost of consolidating is unmanageable.
Finally, remember that debt is not bad if you can manage it. If you're able to make on-time payments consistently, debt can help you build a solid credit history, which in turn can make more financial opportunities available to you. For example, if you're thinking about buying a home, a solid credit score and track record of making your payments in full and on time will help increase your chances of loan approval. Think about your financial goals and whether consolidating debt could help you better prioritize how you'd like to allocate your money.
