Whatever you’ve heard about debt consolidation, it may not be true. Many people don’t understand exactly how debt consolidation works and how it could help them reach their future financial goals, and that’s often because they have heard or believed misinformation about debt consolidation.

There are a number of widely accepted myths about consolidating debt, and those myths may keep people from using this strategy to overcome debt. When you understand the truth about what debt consolidation is and how it works, you can better determine whether this solution is right for you.

Below, we set the record straight about five of the most persistent myths surrounding debt consolidation. Rather than believing the myths, take time to understand how debt consolidation really works and how it can be helpful for overcoming debt and meeting your future financial goals. 

Myth 1: Debt consolidation is a scam.  

Unfortunately, some debt settlement companies have proven to be unreliable, taking money from customers while promising to erase their debts but failing to deliver on that promise. Those bad actors may have given debt consolidation a negative reputation, but true debt consolidation is not a scam.

No company can promise to get your debts erased. However, there are options that may help you pay off your debts by combining them into one easy monthly payment or by giving you more time to pay. These options include a personal loan or credit card balance transfer. When you consolidate various outstanding debts into one personal loan or credit card, you may be able to secure a lower interest rate, a longer time frame to pay the debt, and a simpler way to pay it off. 

Myth 2: Debt consolidation will hurt your credit.  

Consolidating debt means you combine various loans into one new loan or credit card. And anytime you open a new loan, that may affect your credit briefly.

However, even if the new account results in a dip in your credit score, it’s only temporary. When you consolidate several debts into one, your credit score will also reflect the fact that the various debts have been paid, which may increase your score.

Over time, consolidating debt will usually help increase your credit score by reducing your credit utilization, or the amount of available credit you’re using. Your credit utilization represents 30% of your score. Consolidating debt can also help you boost your credit score if you’re able to make the one payment on time every month, as payment history is worth 35% of your score. 

Myth 3: Debt consolidation is for people who need credit counseling.  

Credit counseling can be helpful for people who are overwhelmed with debt, but debt consolidation can be a smart strategy for anyone who just wants to pay off debt quickly and easily.

Consolidating various debts into one simple payment doesn’t mean you aren’t able to manage your debt; it simply means you’re taking control of your debt and simplifying your journey to payoff. If you have multiple credit cards or loans, debt consolidation can simplify your monthly bills, even if you’re not having trouble making the payments. 

Myth 4: Debt consolidation leads to more debt.  

Debt consolidation does involve opening a new loan account or credit card, but if you’re using that loan or credit card only to pay off existing debt, it does not involve taking on new debt.

Rather than adding new debt, consolidation simply reduces the number of creditors you owe and allows you to simplify monthly bill payment. It could also allow you to lower the amount of interest you’re paying each month, if your new loan or credit card has a lower interest rate than your existing debt.

The total amount you owe would be the same, but you could possibly lower the interest rate enough that you would pay less interest than you would if you didn't consolidate, while also lowering your overall monthly payment. It depends on how the new loan is structured, including the interest rate and the payoff term.  

Myth 5: Debt consolidation will always save you money.  

Debt consolidation can save you money, but not always. To save money with debt consolidation, your new loan or credit card has to result in a lower interest rate than you’re currently paying across all your loans or credit cards, or shorten the time frame it will take you to pay off the debt, therefore resulting in less interest paid.

Also, if you miss payments on your new loan or credit line, late fees may occur, or if you take on additional balances as part of your new loan or line, the strategy may not save you money.

If you’re able to secure a lower interest rate with debt consolidation, the money you’ll save is a positive result of consolidating your debt. However, saving money isn’t the best part about consolidating debt. The best result is the ability to simply and strategically pay off your debt so that you can free your funds to help you meet other financial goals. 


Visit our Lending Calculator Library page. Our debt consolidation calculators can help you decide if debt consolidation is right for you. Lending Calculator Library | M&T Bank (

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This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.