What's the minimum debt amount for consolidation and when is it worth it?

When debt weighs on your mind (and wallet), you need real solutions to deal with it. Debt consolidation is one possibility you might consider. When you consolidate debt, you use a loan to pay it off. That way, you only have the one loan to repay instead of a bunch of smaller debts. 

So, how much debt do you need for consolidation? And if you owe a relatively small amount, say $5,000 to $10,000, does it even make sense to apply for a consolidation loan? 

We've got those answers for you and more. Let's look at the minimum debt amount for consolidation so you can decide if it's right for your situation. 

What's the smallest amount you can consolidate?

There is no hard minimum amount of debt that you need to consolidate. However, the method you want to use to consolidate could impact how much debt you need. 

For example, the smallest personal loans you'll generally find are between $1,000 and $5,000. That doesn't mean you can't consolidate if you have less debt, though. You might instead choose to use a balance transfer credit card, which could allow transfers as low as $100 depending on the issuer.

If you're eyeing a home equity loan or HELOC for debt consolidation, the minimum amount you need to borrow may be $10,000 or more. Home equity loans are second mortgages that use your equity—the difference between what you owe on your home and what it's worth—as security or collateral. Cash-out refi loans, which replace your existing mortgage with a new one and let you draw your equity out in cash at closing, may have lower minimums. 

Here's what you might be able to borrow at a minimum with different consolidation options.

Unsecured loans don't require any collateral—something of value that you use to back up the loan—while secured loans do. Banks can offer secured and unsecured personal loans. For example, you might be able to use a certificate of deposit (CD) account as collateral for a loan. Home equity loans and cash-out refinance loans are always secured by your home. 

In short, if you need a $5,000 debt consolidation loan or a $10,000 loan to pay off credit cards, you could have options that include a variety of loan types. 

When debt consolidation might be worth it for small amounts

When is debt consolidation a good idea? Consolidating small amounts of debt could be worth it if you're able to get a much lower interest rate, pay your debt off faster, or just relieve some of the stress of juggling multiple payments. 

Let's look at how much consolidation could save you. We'll assume you have $5,000 in credit card debt and an average 25.99% APR. You want to get a small $5,000 personal loan, and your good credit rating qualifies you for a 12.99% APR. 

This example assumes that it takes you 18 months to pay off the debt. A longer loan term can lower your payment even more, but increase the interest paid. A shorter term means a higher payment but a lower interest cost. 

What if you need a smaller loan? Or what if you want a larger loan so you can get extra money to cover planned expenses? Here's how the numbers add up, once again based on an 18-month term. 

In every scenario, the lower rate from the consolidation loan could save you money. 

When debt consolidation might not be worth it for small amounts

In some situations, debt consolidation may not help you much if you only have a small amount to pay off. You might not benefit from a consolidation loan if:

• The interest rate is higher than what you're paying on your debts now, or your only option is a bad credit debt consolidation loan

• The rate is lower but it has a longer repayment term, which means more interest paid overall

• You could pay off your current debts in a few months using the debt snowball or debt avalanche method

• You'll pay more in fees for the consolidation loan than you'd save on interest

A balance transfer might be an option if you have a smaller credit card bill to pay off. With a balance transfer, you move your debt from one credit card to a new one, ideally with an active low or 0% APR offer. 

Balance transfer credit card offers can give you anywhere from six to 21 months to pay off your debt before the regular (higher) APR kicks in. If you're confident you can knock out the debt before the promotional period ends, then a balance transfer could be a good choice. Most credit cards charge a balance transfer fee, so make sure the fee won't cost you more than you save on interest.

Alternatives to consolidation for small debts

A consolidation loan is just one way to approach small debts. You might look into other solutions for credit card consolidation or medical debt consolidation if you don't want to borrow. Here are some strategies you could try:

• Talk to your credit card company. Your credit card company may be willing to lower your interest rate if you've been a good customer. Explain that you want to pay off what you owe and that a rate drop, even a small one, could be a huge help. 

• Consider a debt management plan. A debt management plan, or DMP, is a structured plan to pay off debts that you set up with a credit counselor. The credit counselor collects one monthly payment from you, and the money is then distributed to your creditors. You may need $5,000 to $10,000 to enroll in a DMP, however. 

• DIY your way out of debt. Small debts could be easier to wipe out than you think with a focused strategy. With the debt snowball, you throw as much money as you can at the smallest balance and pay the minimums to the rest. When you pay off the first debt, you roll its payment to the next on the list. The debt avalanche has you do the same thing, only you pay off debts from the highest interest rate to the lowest to minimize your total cost. These DIY strategies offer a systematic way to pay off what you owe without a loan. 

What's next

Debt, even in small amounts, can be a pain—but you can overcome it. Whether you choose to get a $5,000 loan for consolidation or pursue one of the other paths we shared here, what matters is that you feel confident about your decision. Compare the interest costs of consolidation and how long it could take you to become debt-free to decide if it makes sense for you.