A $28,000 credit card balance at 22% APR will cost close to $55,000 if the borrower pays only the scheduled minimum. ~$27,000 of that total goes to interest. Repayment can extend beyond six years.

Federal Reserve data for May 2026 showed the average interest rate on credit card accounts at 22.15%. Commercial banks reported 11.86% on two-year personal loans. A five-year consolidation quote can land several points above the two-year average. The application itself will determine the rate.

Settlement doesn’t carry an APR at all. Creditors decide whether to accept less than the owed balance after payments stop. Fees, potential tax liability, and credit damage reduce the apparent savings. Missed-payment records can stay on credit reports for years.

Payoff without a new loan

Suppose a household locks in $662 per month across four cards. At 22% APR, the balance clears in about 83 months. Total outflow to the issuers reaches ~$55,000. Roughly $27,000 of that amount is interest.

This projection assumes no new purchases. It also assumes the $662 payment stays constant even as issuers lower required minimums. A borrower who follows those smaller minimums will need longer than 83 months.

What a five-year consolidation loan looks like

The example here uses 13% interest and a 5% origination fee. Lenders deduct the origination fee before disbursement. A $28,000 note would send only $26,600 to the card issuers. The borrower needs ~$29,500 of principal to retire all four accounts.

The lender keeps ~$1,500 as its fee. Monthly payments on a 60-month note at 13% come to ~$670. Total repayment reaches ~$40,200, of which ~$10,800 is interest.

That puts total cost at ~$12,200 above the original card balance. The loan still saves ~$14,700 compared to the card schedule. Repayment finishes almost two years earlier. Any purchase on a paid-off card creates a new revolving balance.

The advertised 13% is the note rate. Federal rules fold the origination fee into the disclosed APR, so the APR will be higher than 13%. The same disclosure document lists the amount financed and total of payments.

CFPB guidance on consolidation loans warns borrowers against judging an offer by its monthly payment alone. A longer term can reduce the monthly amount yet raise the final cost.

Check the disclosed APR

The Federal Reserve’s 11.86% average describes two-year bank loans already issued. It won’t predict a five-year quote for one applicant. Lenders review the credit file before they assign a rate. Income and existing obligations affect the approved amount. Recent delinquencies may lead to a higher quoted rate.

Prequalification often uses a soft credit inquiry. Final underwriting may change the interest rate or approved amount. A formal application can require a hard inquiry.

Compare the disclosed APR to the card accounts. The APR includes the origination fee. Net proceeds need to reach $28,000 in this example. A loan above ~$55,000 will cost more than the card schedule described above. A quote near the 22.15% card APR will save little after the origination fee.

Settlement costs and assumptions

Settlement providers commonly ask customers to stop paying enrolled accounts. The customer deposits funds in a dedicated account until enough accumulates for an offer. Interest and late charges continue during that period. Collection calls or lawsuits can arrive before enough cash accumulates.

Here is one scenario at 55% creditor acceptance:

Enrolled balance: $28,000. Program period: 36 months. Payment to creditors at 55%: ~$15,400. Service fee at 20%: $5,600. Dedicated-account charges over 36 months: ~$360. Cash outlay before tax: ~$21,400.

Canceled debt in this scenario: ~$12,600. Modeled federal tax at 22%: ~$2,770. Cash outlay after modeled tax: ~$24,100.

The settlement total lands ~$16,100 below the loan cost only if creditors accept 55% of the enrolled balance. Accrued interest could raise the negotiation balance to $31,500. The borrower would pay about $26,400 if the service fee remained tied to the original $28,000 balance.

CFPB debt-relief guidance also notes that creditors can reject settlement offers.. Penalties and interest on unsettled accounts can erase part of the expected savings. The provider’s agreement should state whether its estimate uses enrolled debt or the balance at negotiation.

Fee collection under federal rules

Federal telemarketing rules prohibit a service fee before the provider resolves an account. The customer must accept the creditor agreement. Fee collection can begin after the customer makes a payment under that agreement.

Program deposits may sit in the dedicated account before a creditor accepts an offer. The customer owns those funds and may withdraw them. FTC rules for debt-relief services also restrict the provider’s relationship to the account administrator.

An early exit can leave some card accounts unresolved. Fees for completed settlements stay paid. Collection can continue on any account without an agreement, usually at a higher balance than the amount enrolled.

Canceled debt and taxes

The IRS generally treats canceled debt as ordinary income. A creditor may send Form 1099-C. The taxpayer must report the correct taxable amount even if no form arrives. At a 22% rate, federal tax on the modeled ~$12,600 cancellation comes to ~$2,770.

The insolvency exclusion can remove part or all of the canceled amount. Insolvency exists when total liabilities exceed the fair market value of total assets immediately before cancellation. The exclusion caps at the amount of insolvency. IRS Publication 4681 provides the worksheet. Taxpayers will report the exclusion on Form 982.

Retirement balances count among the assets on the insolvency worksheet. Severe card debt alone won’t create an automatic exclusion.

Credit reporting consequences

A consolidation application usually creates a hard inquiry. The new installment account can cause a temporary score change. Paying off cards lowers utilization, the share of available credit currently in use. Whether the lower utilization lasts depends on future card activity. Late loan payments will create new negative history.

Settlement commonly follows missed card payments. Reports can show late payments, charge-offs, collections, and an account settled for less than the full balance. Most negative information can remain for seven years. No settlement provider can promise a specific score loss or a recovery timeline.

Credit damage begins before the creditor accepts a settlement. A later agreement won’t remove the accurate missed-payment history.

Issuer hardship plans and credit counseling

Card issuers may reduce the interest rate, waive certain fees, lower the required payment, or move the due date. Ask for any hardship proposal in writing before you stop payments.

A nonprofit credit counselor may prepare a debt management plan. Creditors in the plan may reduce rates or waive certain charges. The customer repays principal through one monthly deposit. Creditors often close enrolled card accounts.

Households without a sustainable loan payment or settlement deposit should request a bankruptcy consultation before they sign a debt-relief contract. CFPB guidance lists a nonprofit counselor and a bankruptcy attorney among the alternatives worth reviewing.

Base the decision on written offers

Accounts current, loan affordable: compare the loan APR after fees against the balance-weighted card APR.

Loan quote near the card rate: request an issuer hardship offer or a debt management proposal before borrowing.

Full repayment unaffordable: obtain a settlement schedule for every enrolled creditor and ask the provider to specify the expected negotiation balance.

Monthly settlement deposit unsustainable: review bankruptcy options before enrollment.

Ask for the settlement fee basis and assumed creditor percentage in writing. The loan disclosure should state APR, amount financed, finance charge, and total of payments. Compare total cash outlay and completion dates across every written offer. The household budget must sustain the selected payment until its stated end date.