Does consolidation hurt your credit score?
There is a short dip from the hard inquiry and new account, but scores usually improve within 6–12 months as revolving utilisation drops — utilisation is about 30% of a FICO score.
Calculate potential savings from consolidating multiple debts into one loan. Compare your current total payments vs a single consolidated payment.
New payment = P × r × (1+r)^n ÷ ((1+r)^n − 1), where P = total consolidated balance. Savings = current total interest − (new total interest + fees).
Consolidating $18,000 of card debt at 24% into a 5-year loan at 12% cuts the monthly payment from about $540 to $400 and saves roughly $9,800 in interest, even after a 3% origination fee.
There is a short dip from the hard inquiry and new account, but scores usually improve within 6–12 months as revolving utilisation drops — utilisation is about 30% of a FICO score.
The new APR plus fees must beat your weighted average current rate. Origination fees of 1–8% are common, so include them: a 12% loan with a 5% fee behaves closer to 15%.
Freeing up card limits and running them up again. Consolidation only works if the cards stay closed or unused — otherwise you double the debt at the same monthly payment.