Debt Consolidation Cost by Method
| Method | Upfront Cost | Ongoing Cost | Total Cost (Example: $20K debt) |
|---|---|---|---|
| Personal loan (10% APR, 5 yr) | $0–$1,600 origination | $425/mo | ~$25,500 total |
| 0% Balance transfer (21 mo) | $600 (3% fee) | $952/mo (to clear in 21 mo) | ~$20,600 total |
| Debt Management Plan | $0–$75 setup | $25–$75/mo admin | ~$22,000 + $2,500 admin |
| Keeping current cards (22% APR) | $0 | Min payments = never ending | $40,000+ total over 10+ years |
Step 1: Total current monthly interest across all debts. Step 2: Calculate new loan monthly interest + any fees amortized over loan term. Step 3: Compare total interest + fees paid. If consolidation saves at least $1,000 total, it's likely worth the process. Online consolidation calculators (most lender websites have them) automate this calculation.
Frequently Asked Questions
Generally no — interest on personal loans used for debt consolidation is not tax deductible. Home equity loan interest may be deductible if used for home improvement, but not for paying off credit cards. Student loan interest is deductible (up to $2,500/year) but this applies to the original student loan, not a personal loan taken to pay it off.
Yes — and it often makes sense to. Most personal loan lenders charge no prepayment penalty (LightStream, SoFi, Marcus, Achieve). Paying extra principal each month or making lump-sum payments reduces total interest paid significantly. Check your loan agreement for prepayment terms before assuming — some credit unions and smaller lenders do charge early payoff fees.