5 ways to lower your debt costs and save with debt consolidation

By Rebecca Lake

Reviewed by Jill Cornfield

May 31, 2024

Read time: 4 min

Couple doing home finances together at home

Key takeaways:

  • A good way to avoid overpaying is to shop around to compare lenders.

  • You’ll pay less interest overall by paying off your loan faster. Sometimes, choosing a shorter term also gets you a lower interest rate.  

  • You could cut down on the total amount of interest you pay by making extra payments against the principal balance when you can.

You're ready to deal with your debt, and that deserves a pat on the back. After weighing the options you've decided on debt consolidation

Consolidating debt could simplify your monthly payments and make budgeting easier. And it might even help you save some money in the process. 

Sounds good, right? We've got some tips to help you maximize your savings as you consolidate debts

5 ways to save the most money with debt consolidation

There are different ways to consolidate debt. 

You might get a personal loan and use it to pay off debts. Or you could leverage your home equity to get a loan or line of credit. A 0% APR balance transfer is also a possibility, though the promotional rate is only good for a limited time. 

Regardless of how you choose to handle debt consolidation, there are some universal strategies you can use to lower the amount you spend on interest and save money compared to more expensive debt.

1. Check your credit

Most lenders will want to take a peek at your credit before approving you for a loan. So it makes sense to check your credit yourself to see where you stand. 

There are free credit monitoring services you can use to check your credit. Keep in mind that your scores might not be the same across different apps, since we all have many different credit scores. That’s okay. Use free credit scores as a benchmark, to know what neighborhood you’re in. 

Checking your credit can help you figure out what's helping your score or what might be hurting it. When you know why your score is where it is, you can take steps to improve it

That's where the savings comes in. Sometimes lenders offer different interest rates depending on your score. For instance, let’s say the lender offers rate A to applicants with a 720 or higher, and rate B to applicants with a score between 660 and 719. You check your credit and discover that it’s 715. In this case, it might be worth investigating what you could do to get it up to 720 before you apply. A lower interest rate means you’ll pay less for the entire life of the loan.  

The lower your rate, the more money you could save over the life of the loan. 

2. Shop around to compare loan rates

Plenty of lenders offer loans for debt consolidation, but rates aren't the same across the board. 

Some debt consolidation loans have fixed rates, which means the rate (and your payment) never changes. Other loans have variable rates, so the rate can go up or down over the loan term. 

Getting a minimum of three rate quotes from different lenders can shed some light on what you might pay.

As you get personal loan rate quotes, remember to:

  • Use the same loan amount and preferred repayment term, if possible.

  • Enter your estimated credit score if the lender asks for it. 

  • Choose lenders that offer quotes without impacting your credit. 

Again, the goal is to find the loan with the terms you need at the best rate possible for your credit range. 

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3. Consider a shorter loan term

Choosing a shorter repayment term usually means you'll have a larger loan payment to make. The same is true with balance transfers, since you typically have 18 months or less to pay them off before the introductory rate ends. 

But there's a major savings benefit that you can't overlook. A shorter term means you fork over less interest to the lender. 

Here's an example. Say you qualify for a $20,000 personal loan at 10%. Your lender offers you a choice of a 48-month repayment term or 60 months. Here's how the cost compares. 

  • Loan A would require you to make 48 payments of $507 and cost you $4,348 in interest.

  • Loan B would require you to make 60 payments of $425 and cost $5,496 in interest.

Cutting your loan term down by one year saves you $1,148. That's a good reason to consider a shorter term if your budget can handle it. 

4. Snag a rate discount

Rate discounts could trim a little interest from your loan. That could mean a lower monthly payment and relief on your budget now, or a shorter time to payoff compared to the timeline you were on before you consolidated. Lenders may offer one discount or several—the more you qualify for, the more you could save. 

For example, Achieve offers personal loan for debt consolidation discounts for:

  • Adding a qualified co-borrower to your application

  • Showing proof of sufficient retirement savings

  • Allowing for direct payment of creditors when you use loan funds to consolidate debt

Some lenders may also give you a rate cut if you enroll in automatic payments. 

Rate discounts may be relatively small. A typical discount amount is 0.25%. But if you're combining discounts, that could add up to a decent amount of savings over the long term. 

5. Pay more than the minimum

The last way to maximize debt consolidation savings might be the simplest. Just pay extra on your loan, whenever you can. 

There are a few ways you could do it:

  • Make biweekly payments, which adds up to one full extra payment each year. 

  • Use windfalls and unexpected cash (like tax refunds or rebates) to pay down the balance. 

  • Pay a set amount ($5, $10, $50, etc.) over the minimum payment each month. 

The beauty of this strategy is that you can move at a pace that fits you and your budget. You can use a debt paydown app to keep tabs on your progress as you make extra payments. 

Bottom line

Consolidating debt can offer some advantages if you want to combine multiple debts into one. And once the debt is gone, you can turn your focus to other financial goals. The five strategies we've shared here could make it easier to save without putting stress on your budget.

Rebecca Lake - Author

Rebecca is a senior contributing writer and debt expert. She's a Certified Educator in Personal Finance and a banking expert for Forbes Advisor. In addition to writing for online publications, Rebecca owns a personal finance website dedicated to teaching women how to take control of their money.

Jill Cornfield

Jill is a personal finance editor at Achieve. For more than 10 years, she has been writing and editing helpful content on everything that touches a person’s finances, from Medicare to retirement plan rollovers to creating a spending budget.

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