Editor's choice: Credible personal loans
- Loan range: $1,000-$100,000
- Personalized rates in minutes
- Funds as soon as 1 day
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Updated . What changed?
Debt consolidation moves credit card and personal loan balances into a new account for one monthly payment. It’s a useful tool to manage multiple debts before they get out of hand and could even help you save on interest — especially if you have good credit and owe less than half your yearly income.
Debt consolidation works by moving multiple debts into one, new account. You can consolidate your debt with personal loans or balance transfer credit cards.
Select your credit score range and the state you live in, then click Show me my personalized options to get a selection of loans that could help you consolidate your debt.
Debt consolidation loans and balance transfer credit cards are not for everyone. When done under the wrong circumstances, it could hurt your finances more than it helps.
Debt consolidation generally involves taking out a loan or credit card, but you have several different types to choose from. The best option for you depends on how much you owe, your income and credit score.
A debt consolidation loan is an unsecured personal loan you use to pay off one or more account balances. Typically, you can borrow up to $50,000 with APRs ranging from 5% to 36% that you pay back over three to seven years.
Generally, you need good to excellent credit to qualify.
You can use any personal loan for debt consolidation. But some lenders specialize in debt consolidation, specifically. Often these will pay off your creditors directly and are easier to qualify for with a high debt load.
A balance transfer credit card allows you to move multiple credit card balances onto one new card. Often these come with 0% APR promotional rates that last up to 21 months.
But it’s not fee. Often there’s also a balance transfer fee, which can range from 3% to 5% of the amount you transfer, usually with a minimum. You might also pay an annual fee. Generally, you need a credit score of at least 670 to qualify — what lenders consider to be good credit.
A secured loan is a personal loan that you back with collateral. This can be anything of value that you own, like a savings account or CD. They’re typically easier to qualify for than other types of funding and can be a great option if your credit is less-than-perfect or you have a high debt-to-income (DTI) ratio.
Also known as a second mortgage, a home equity loan or a home equity line of credit (HELOC) is backed by the amount you currently own in your home — or equity.
These typically come with lower rates than unsecured personal loans. But the risk is greater: You could lose your home if you default.
A 401(k) loan allows you to borrow from your retirement fund balance at a low interest rate — without paying early withdrawal fees.
You’re effectively paying interest to yourself, but you’re doing it with after-tax income — otherwise 401(k) contributions are before you pay taxes. You also stand to owe it all back in one lump sum if you leave your current employer — and you could be hit with penalties if you can’t pay it back immediately.
Best for: Anyone repaying student loans who wants better rates or terms.
The best way to consolidate your private student loans is by combining them into one new loan with a student loan refinancing provider. This allows you to change up your loan term, get a more competitive rate — or both.
Generally, you need to have at least a year of repayment history and excellent credit to qualify.
Student loan consolidation usually refers to a federal Direct Consolidation Loan, which you can use to consolidate multiple federal student loans into one.
It won’t change your rate, but it can help you qualify for more repayment and forgiveness options. But it’s not available for private student loans — only federal.
Understanding what types of debt you can consolidate is the first step toward deciding which consolidation options you might want to consider — if any. People generally consolidate these kinds of debts:
Consolidating debt can be helpful for some people, but it’s not a silver bullet. Consider these risks before you sign up
Weigh the pros and cons of debt consolidation before you decide on this option.
Look for offers for service members and veterans. Often these have lower rates and more favorable terms than your average personal loan. Especially if your credit is less than perfect.
If you enter active duty talk to any of your current creditors, too. Your rates may be lowered in accordance with the Servicemembers Civil Relief Act.
When you take out a new loan or credit card, creditors do a hard credit check that temporarily lowers your score by a few points. However, if it helps you pay off your debt faster and make on-time payments, your score could improve in the long run.
If debt consolidation doesn’t seem like the best option for you, consider one of these alternatives.
The FTC recommends assessing your finances and contacting your creditors before looking into debt consolidation alternatives. If you’ve been rejected for debt consolidation, find out why before you turn to alternatives. You might be able to qualify in the near future by paying off your debts or taking steps to boost your credit score.
When your debt becomes unmanageable and a balance transfer credit card or consolidation loan just won’t cut it, you may want to consider turning to debt relief.
Debt relief comes in several forms such debt settlement, bankruptcy, debt management, negotiation or credit counseling. Generally, debt relief is for those whose debt is over 50% of their annual income or have only a nominal chance of paying off their unsecured debts within a reasonable time frame.
Debt consolidation can be a great option if you’re looking for lower rates or more manageable repayments. If that’s the case, you can learn more about how to apply and what to expect by reading our guide to personal loans.
But it’s not ideal if you have poor credit or a high DTI. In that case, you might want to consider other debt relief options.Back to top
Answers to common questions readers have about debt consolidation.
It’s possible to consolidate your debt with bad credit. Some lenders provide debt consolidation loans to individuals with less-than-perfect credit. In these cases, the APR you qualify for may not be as low as for someone with better credit.
Other options like 401(k) loans, secured personal loans and HELOCs might be easier to qualify for. But you risk losing your collateral, retirement funds or even your home if you can’t repay. And generally, balance transfer credit cards aren’t available to bad credit applicants.
No. You can only transfer your existing debts to new loans that you take out in your own name.
That depends on the lender. Some like Discover that specialize in debt consolidation will send your repayments directly to your creditors. But general-use personal loan providers might not provide that service.
No, debt consolidation can actually make you look good to lenders. It shows that you’re on top of your finances and have taken steps to change bad habits. But if you fall behind on repayments or continue to rack up debt, that will hurt your next loan or credit card application.
Most likely, yes. Many lenders offer loans with no prepayment penalties. If you’re interested in that benefit, be sure to check that the lender you’re considering offers it.
No, the IRS doesn’t consider loans as income, so you won’t have to pay taxes on it. If your creditor reduces the amount of debt you owe, however, that’s generally subject to income tax.
Debt consolidation refinancing is a type of debt consolidation. It involves refinancing your mortgage into a loan that includes other types of debt. Generally, you won’t benefit from this unless you can qualify for a better rate than you have on your current mortgage.
The first and most important thing is to stop taking on new debt outside of debt consolidation. This means avoiding loans, but also curbing your credit card spending to only what you need. Go over your spending habits and be honest about what you really need. It’s OK to keep a few luxuries in your life if they aren’t incredibly expensive and you actually use them.
After you’ve whittled your spending down to a manageable amount, make room in your budget to put aside some cash to start saving. And treat your monthly credit card payments as a priority as important as your rent.
Debt consolidation can be a smart move depending on your financial situation. Generally, consolidating debt is a good idea if you owe less than you make in a year and a credit score that’s high enough to help you qualify for a loan. Otherwise, consider other options to pay off high-interest debt.
It can give you a lower monthly payment more manageable and give you a lower interest rate than you’re currently paying to help you save over the life of the loan.
It depends on whether your bank offers personal loans for debt consolidation. If personal loans are available, compare the rates, loan amounts, terms and requirements to other providers available. Also check your bank account to make sure it’s in good standing and ask if the bank offers a relationship discount.
If your debt is with the bank, double check to make sure that debt is eligible for consolidation. Some creditors won’t let your refinance or consolidate a loan if they’re currently the lender.
Prepare ahead of time, prioritize high-interest debt and don’t be afraid to ask for help.
Compare 6 lenders to find one that’s a good fit for your needs.
Turns out mindfulness isn’t just for yogis — it can also help rein in your spending habits.
Build on your previous success with this debt relief strategy.
Save by paying off your highest-interest debts first.
Let your phone help you get your finances under control.
Compare your personal loan and balance transfer credit card options.
Find out how this method of paying off your highest-interest debts first can save you in the long run.
Here’s how having good credit when you consolidate your debt could save you money.
Learn how to prioritize your bills and find assistance programs if you’re struggling to make ends meet during the government shutdown.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.