Financial experts say debt consolidation can help you get ahead of credit card debt, but it won't fix everything

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• Carrying credit card debt is expensive, which might make debt consolidation useful for some.
• However, debt consolidation doesn't mean that you don't have to pay back your debt.
• Talk to a financial planner who can help you find the best solution to your individual problem.

With average credit card interest rates at 21.59% as of February 2024 per the Federal Reserve, carrying any amount of credit card debt can become costly in a hurry. Fortunately, there are ways to erase credit card debt or at least get it under control, such as a personal loan.

Many experts also recommend consolidating high-interest credit card debt onto a personal loan, as these loans often offer lower interest rates. Other types of loans commonly used for debt consolidation include home equity loans, HELOCs, and even 401(k) loans.

The thing is, debt consolidation doesn't always work, and for more reasons than one. According to Howard Dvorkin of Debt.com, "all it takes is human nature" for the best-laid debt payoff plan to fall apart.

Can a debt consolidation loan actually make debt worse? Financial experts say the answer is yes, for four reasons.

1. You're not paying off the debt

Dvorkin points out that debt consolidation with a loan moves the money you owe onto a single loan that likely has a lower interest rate, but "you haven't lowered your principal." This puts you in a position where you're playing a shell game with your debt — one where you still owe as much as when you started.

Personal loans for debt consolidation often come with origination fees, which is usually a percentage of the loan amount.

2. You can still fall behind

Consider a scenario where someone gets a debt consolidation loan, but then they're laid off or they're in a serious car accident. Suddenly, they can't keep up with payments, causing their account to go to collections.

"Their credit score tanks, which means they can't get another debt consolidation loan or even a credit card," said Dvorkin. "Now they're worse off than they were before."

3. Debt consolidation doesn't solve spending issues

Financial expert Andrea Woroch points out that debt consolidation may be nothing more than a Band-Aid if you don't identify and fix the poor money management habits that got you into debt in the first place. If you keep spending as normal after you consolidate debt, you could easily rack up even more debt than you started with, she said.

That's why financial advisor Kendall Meade of SoFi always recommends halting credit card use for people who consolidate debt with any type of loan.

"I have seen many people consolidate their debts into a loan but then continue to run the credit cards back up," said Meade. "Now they have double the payments and may not have the option to consolidate again making it much harder for them to get out of debt."

4. Some debt consolidation loans have additional risks

Finally, remember that some types of loans you can use for debt consolidation have a unique set of risks. Anne Lester, author of "Your Best Financial Life" and former Head of Retirement Solutions for JPMorgan Asset Management, said that this is definitely the case with 401(k) loans that let consumers borrow from their own retirement.

While borrowing against a 401(k) can give people access to cash for debt consolidation, Lester said that most of these loans need to be repaid over a relatively short timeline. Borrowers also have to repay the loan with after-tax income.

Lester also said that someone who voluntarily leaves or loses their job will need to repay the entire loan immediately to avoid having it treated as a withdrawal.

If they can't repay the loan right away, "they will owe income taxes and an additional 10% early withdrawal penalty if they are below the age of 59½," she said.

Other risks apply to home equity products. While home equity loans and HELOCs may offer attractive rates and flexible repayment terms, they use the value of your home as collateral. This means you could lose your home to foreclosure if you fail to pay the money back.

All these risks aside, consolidating debt onto a loan with a lower interest rate can still work. The key to getting ahead with this strategy is having a plan in place ahead of time and sticking to it no matter what life throws your way. A good first step is talking to a financial planner about your unique situation.