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How to consolidate credit card debt with a personal loan

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If you're struggling with credit card debt — just barely making minimum payments, sometimes a little more — then you've probably heard of and maybe started researching "consolidating that debt" with a personal loan.

But what exactly is a debt consolidation loan? Is it right for you? And how do you get started?

Here are all of your questions answered.

What is debt consolidation?

Debt consolidation is a fancy term for collecting a chunk of debt from any number of credit cards, medical bills or vehicle repairs and paying it off with a personal loan.

The strategy for a borrower is to make one monthly payment on a loan instead of however many to those credit cards — and ultimately pay off that existing debt sooner. Financial goals can include:

  • Lowering the interest rate of your debt. The best personal loans often have lower interest rates than credit cards. If the personal loan has a lower rate, you may be able to pay it off sooner, eliminating your existing debt quicker.

  • Improving your credit score. As you repay your credit card debt with a debt consolidation loan, your debt-to-income ratio is slowly lowered. That's a measure of your debt compared to your monthly income.

  • Gaining a more affordable monthly payment. With a lower annual percentage rate, you may have a more affordable monthly payment yet still pay off the existing debt sooner.

How a debt consolidation loan works

With a decent credit score and a solid credit history, you'll want to qualify for a personal loan with a lower interest rate than your existing debt. That's key. You'll want to shop several personal loan lenders for the best loan terms and competitive interest rates. Online lenders, credit unions, traditional banks — all types of loan lenders should be in the mix.

Carefully consider repayment terms and loan offers for the best debt consolidation loan.

Once you gain loan approval, the lender may distribute the loan amount to the credit card companies holding your existing debt. If not, you'll want to use the loan proceeds to pay off your creditors. Then you'll begin making monthly payments on the new personal loan.

How to choose the best debt consolidation loan

The best debt consolidation loans have low APRs, a fixed interest rate and minimal fees. Some charges to look for, and try to avoid, are loan application, credit bureau, and origination fees, as well as prepayment penalties.

What to look for in a debt consolidation lender

The best lenders will reward excellent credit with the lowest rates. However, they will also accommodate borrowers with a spotty credit history — and even bad credit, perhaps by allowing a co-signer to help secure loan approval.

Leading debt consolidation loan lenders will offer other perks, such as prequalification with a soft credit check that won't impact your credit score. They might also offer other loan options, such as an interest rate discount for direct payments made with an autopay option. The best lenders will offer repayment terms featuring a fixed monthly payment for the life of the loan and an unsecured personal loan, requiring no collateral.

These standout lenders will also deliver loan funds rapidly, sometimes as quickly as the next business day.

How to get a debt consolidation loan

The first step is to know your credit score. That will give you a good idea of the loan terms you may qualify for.

Then, shop several lenders. You may talk to the financial institution with your current bank account. Online lenders and credit unions are also worthy debt consolidation loan providers.

Prequalify to learn the loan terms each lender will offer and an estimate of loan payments with a credit inquiry that won't ding your credit score.

Apply. Once you have your loan offers in hand, make an official loan application with the lender best meeting your needs.

Other strategies to pay off credit card debt

Before jumping into a debt consolidation loan, make sure that you have considered other options to reduce high-interest debt. Strategies include:

A balance transfer credit card: With a good credit score, you may find a limited-time zero-interest balance transfer credit card that will give you some breathing room on existing debt. However, you want to be careful not to negatively impact your credit. And be on the lookout for when that low promotional APR expires.

A debt repayment strategy: Using a systematic method to pay off debt can help you structure an efficient way to reduce and eventually eliminate debt. A debt snowball prioritizes paying off the smallest debts first in an effort to build a sense of accomplishment and momentum in reducing debt. The debt avalanche method first pays off the highest interest debt, reducing interest charges and allowing future payments to be allocated to a more significant portion of the debt principal.

Credit counseling: Talking to a nonprofit credit counselor may help you adjust your financial habits and break a long-term tendency to take on debt.

Debt settlement: A debt management plan designed and negotiated by a debt relief company can help reduce existing debt. Fees can be excessive, though, so shop for an affordable and reputable provider. Expect your credit record to take a negative hit. And there will likely be income taxes to pay on the dismissed debt.

Bankruptcy: Filing for bankruptcy is an option of last resort. The legal process may require you to liquidate assets to repay creditors, and your credit score can dive with your credit history impacted for up to 10 years or more.

Finally, if a debt consolidation loan still looks like your best solution, use a debt consolidation calculator to see what the exchange of high-interest debt for a lower-interest personal loan might look like. Run the numbers to see just how much you need to borrow and what the optimum interest rate would be on the new loan to erase the existing debt over time.

Use caution when considering these debt reduction options

People under financial stress may consider payday loans to gain quick cash flow. These generally small-dollar short-term loans can launch a seemingly endless cycle of loan rollovers. And they're not cheap. Often charging $10 to $30 for every $100 borrowed, even a fee of $15 per $100 is equivalent to a 400% APR, according to the Consumer Financial Protection Bureau. Taking on additional high-interest debt is rarely a viable way to consolidate or eliminate debt.

Tapping your home equity with a line of credit or home equity loan is often pitched as a way of lowering high-interest debt. However, you are replacing unsecured debt with a secured loan, putting what is likely your highest-value asset, your home, at risk.

Frequently asked questions

How do you qualify for a debt consolidation loan?

During the loan approval process, lenders will consider your creditworthiness, including your credit score and credit history. They will also verify your monthly income and credit utilization by comparing your debt load to your income by calculating a debt-to-income ratio. Lenders will also determine what amount they are willing to loan you to cover your existing debt payments — and the repayment period and interest rate required to offset the risk they assume in granting the new loan.

Borrowers with a credit score of 740 and over earn the lowest APR. Some lenders will make loans to borrowers with credit scores of 670 and under, but the higher interest rates charged to borrowers with bad credit will often preclude the use of the loan for debt consolidation.

Is debt consolidation worth it?

It is if you qualify for a new loan interest rate significantly lower than the interest you already pay on existing debt. A debt consolidation loan won't make sense if you cannot qualify for a lower APR than what you're currently paying.

And there are two instances to consider another debt reduction play: 1) If the balances you owe are small and can be quickly paid off with a concentrated effort, or 2) If you owe too much in existing debt to manage a debt consolidation plan.

What does it cost to consolidate debt?

Your cost will include the interest you pay over the life of the loan and any upfront or ongoing fees. You'll want to compare that to the interest you're currently paying on existing debt.

Does debt consolidation hurt your credit?

In the short term, your credit score will likely fall as the debt you add from the new loan is reflected in your credit history. However, when the payoffs are noted on the debt you held on the credit cards that were the target of the debt consolidation loan, your credit score is likely to recover. With steady payment on the new loan, without late payments and along with resisting adding new debt, your credit score will likely improve over time.

Is it hard to get a debt consolidation loan?

Unlike home mortgages and vehicle loans, personal loans usually require less paperwork and time to qualify. However, a debt consolidation loan may seem riskier to a lender without an asset like a house or car to back the loan. With good credit and a proven repayment history, you should find lenders eager to work with you.

Can I consolidate my debt on my own?

Combining your high-interest debt into one lower-APR loan is the foundation of a debt consolidation loan. There are just a few ways that you can do this without borrowing money. One is to use a cash windfall, like an income tax refund, workplace bonus or cash gift, to pay off existing debt.

You can also try contacting your creditors to see if they might give you a break on the interest rate, allow lower minimum monthly payments or write off a backlog of fees.

How long do debt consolidation loans last?

Debt consolidation loans have repayment terms that typically last two to five years.

What are the pros and cons of debt consolidation?


  • You lower your interest rate on existing debt to pay it off sooner.

  • Debt management and budgeting may be easier with a single payment amount each month rather than several.

  • You have a timeline to debt payoff: the term of the debt consolidation loan (as long as you don't add debt along the way.)


  • You may not be approved for an interest rate lower than your existing debt.

  • You are not eliminating debt but, in effect, refinancing it. The debt will only be erased over time as you pay the loan off — and don't assume new debt. In fact, you could end up paying more interest if you're not careful.

  • It doesn't cure the root of your indebtedness. Did the debt accrue from one-time expenses that are unlikely to be repeated? Or was it from spending money beyond what you can generally afford?

  • Some debt consolidation loans may feature low-APR "teaser" rates that can move higher over the life of the loan. Or, you may have a lower monthly payment but are repaying the loan over a longer time. That can eliminate the benefit of refinancing your debt in the first place.

How long does it take to get approved for a debt consolidation loan?

Loan approval can happen as quickly as the same day, with loan proceeds generally issued within one week.

Can I consolidate all of my debt?

Debt consolidation loans can help reduce high-interest credit card debt and revolving lines of credit. They are not meant to erase loans for certain types of debt with property assigned as collateral, such as a home mortgage or vehicle loan.

How much can I borrow for a debt consolidation loan?

The loan amount for a typical debt consolidation loan ranges from about $3,000 to $20,000. Some lenders advertise loans up to $100,000, but those amounts are likely reserved for borrowers with exceptional credit.

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