Consolidation ·
Consolidation: when the math works, and when it doesn’t
Five payments becoming one is worth something. It is not worth what the term extension costs.
Consolidation gets sold on tidiness. Five payments become one, one date to remember, one balance to watch. Tidiness is genuinely worth something. It is just not the reason to do it — the only reason that survives a spreadsheet is a lower total cost.
Here is the version that works. Say you carry $9,000 across cards averaging 22 percent, and you can find $299 a month. On the cards, $299 clears the balance in about 44 months and costs roughly $4,200 in interest. A three-year loan at 12 percent costs the same $299 a month and about $1,760. Identical money leaving your account, eight months shorter, and roughly $2,400 you keep.
Here is the version that doesn’t. Take the same loan at the same 12 percent and stretch it over six years instead of three. The payment drops to about $176, which feels like the win. The interest goes from $1,760 to roughly $3,670 — more than double, and nearly back to what the cards were going to cost you. Term does as much damage as rate, and it is the lever a lender reaches for when it wants your signature.
Term does as much damage as rate. It is just quieter about it.
Two costs hide in the paperwork. An origination fee of 5 percent on that $9,000 is $450, and it usually comes out of the money you receive — you borrow $9,000 and $8,550 arrives. And if the loan is secured on your home, a card balance you could once have negotiated has quietly become a debt that can take the house.
The real failure mode has nothing to do with rates. Consolidation clears the cards; it does not close them, and a cleared card is an available card. Do that once and you have a loan. Do it twice and you have a loan and the cards back. If the plan does not say what happens to the empty cards, it isn’t a plan yet.
So do the sum before anyone quotes you anything. Total what you owe, note the highest rate you are paying, and work out what you have actually paid over the last twelve months. Consolidation earns its keep when a real offer beats all three. Not when it rearranges them.