Consolidating credit card debt into a personal loan is one of the few pieces of financial advice that is almost unconditionally correct on the arithmetic: cards revolve at roughly 42% annualised, personal loans at 11–18%. The condition is behavioural, not mathematical — it only works if the cards stay paid off afterwards.
| Typical rate gap: card vs consolidation loan | ≈ 24 – 30 percentage points |
|---|---|
| What it means | Card revolving cost ~42% p.a. against personal loans from ~12%. |
as of 2026-08-15 · Issuer tariff schedules and lender rate cards · reported
What to know
Work a real case. ₹4 lakh revolving on cards at 3.5% a month costs about ₹14,000 a month in interest alone, and the balance barely moves if you pay only the minimum. The same ₹4 lakh as a three-year personal loan at 13% costs roughly ₹13,500 a month in total — run your own figures through the EMI calculator — and clears completely in 36 months. Same outgo, one ends.
The failure mode is well documented and worth naming: the cards are consolidated, the limits stay open, and within a year they carry a balance again — now alongside the loan EMI. If you consolidate, reduce the card limits at the same time. Not closing them entirely, which hurts your credit utilisation ratio and credit history length, but reducing them enough that the balance cannot rebuild.
Frequently asked questions
Is debt consolidation a good idea?
On the numbers, yes, when it replaces credit card debt at roughly 42% annualised with a personal loan at the rates lenders currently publish. It fails when the freed-up card limits are used again, which converts one debt into two. Reduce the limits at the point of consolidation.
Will consolidating my debt hurt my credit score?
Short term, slightly — a new loan is a hard enquiry and a new account. Medium term it usually helps, because paying down revolving card balances sharply reduces your credit utilisation ratio, which carries significant weight in the score.
Should I close my credit cards after consolidating?
Usually not entirely. Closing cards reduces your total available limit, which raises your utilisation ratio, and closing an old card shortens your credit history. Reducing the limits achieves the discipline without the score damage.
Sources
- TransUnion CIBIL — Understanding your CIBIL score and report (primary source)
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