Should You Ever Take on More Debt to Pay Off Debt?

Have you ever wondered whether taking on new debt could actually help you pay off your existing debt? At first, the idea might sound counterintuitive—even risky. But under the right circumstances and with a solid plan, certain types of debt restructuring could actually help you save money and get out of debt faster.

Let’s break down a few options, along with the pros, cons, and key things to watch out for. The most important rule: never take on new debt unless you’ve run the numbers and are confident it won’t leave you worse off.

Here are three strategies to consider:

1. Balance Transfer to a 0% Interest Credit Card

Transferring high-interest credit card debt to a 0% interest balance transfer card can save you a significant amount of money—if used correctly.

How it works:

• Many credit card companies offer promotional 0% interest rates on balance transfers for a limited time (usually 12–18 months).

• The catch? They're betting you won’t pay it off during that promotional window—so they can charge you a high interest rate after the intro period ends.

What to watch for:

• Balance transfer fees: These typically range from 3% to 5% of the transferred amount. For example, a 5% fee on a $1,000 balance means you’ll pay $50 upfront.

• Intro period length: Make sure you know how long the 0% rate lasts.

• APR after the promo ends: If you don’t pay off the full balance by the deadline, you’ll start accruing interest—potentially at a higher rate than you had before.

• Payment discipline: Don’t treat the 0% interest as a reason to delay payments. Make a plan to pay it off aggressively before the promo ends.

2. Refinancing

Refinancing a mortgage or other large loan could help you lower your monthly payments or pay less in interest over time.

How it works:

• You take out a new loan (ideally with a better interest rate or different terms) to replace your existing one.

• This strategy works best when interest rates have dropped, or if your credit score has improved.

What to watch for:

• Closing costs: Refinancing a mortgage often comes with thousands of dollars in fees. Make sure you’ll stay in your home long enough to recoup those costs.

• Appraisal fees: Your home may need to be appraised again, which adds to the upfront cost.

• Loan term changes: You might choose a shorter loan to pay it off faster or a longer one to reduce monthly payments—but a longer term could mean paying more in interest overall.

• Total cost over time: Even with a lower rate, extending your loan term might increase the total amount you repay. Always compare total interest paid over the life of the loan.

3. Loan Consolidation

Consolidating multiple loans into one can simplify your finances and potentially reduce your interest rate.

How it works:

• You take out a new loan—often a personal loan—to pay off several existing debts.

• Instead of juggling multiple due dates and interest rates, you’ll have a single loan with one monthly payment.

What to watch for:

• Origination fees: Many lenders charge an upfront fee based on a percentage of the loan. For example, a 3% origination fee on a $10,000 loan would cost $300.

• Repayment terms: Know how long the loan lasts, the interest rate, and whether there’s a prepayment penalty.

• Discipline: Consolidation only works if you don’t rack up new debt on the credit cards you just paid off.

Student loans are a common example of consolidation, but this can also work for credit cards, personal loans, and other types of debt.

Final Thoughts: Should You Do It?

Taking on new debt to pay off existing debt can be a smart financial move if—and only if—you’re saving money overall and improving your financial situation.

Always:

• Run the numbers carefully, including all fees and total interest paid.

• Read the fine print on new loan or credit terms.

• Avoid relying on this as a repeat solution—it’s a short-term strategy, not a permanent fix.

And remember: debt restructuring only helps if you also adjust the spending habits that led to the debt in the first place. Use this opportunity to build better financial habits, automate payments, and avoid falling back into the cycle.

Just because you’re saving on interest doesn’t mean you now have money to spend freely. Stay intentional with your finances, and you’ll be setting yourself up for long-term success.