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Debt Consolidation
Personal loan for debt consolidation
Updated May 06, 2026
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Key takeaways:
Debt consolidation could streamline your monthly payments, lower the cost of your debt, or both.
Paying off credit card balances with a personal loan may have a positive impact on your credit profile over time, depending on your overall credit behavior.
Not every debt is a good candidate for consolidation.
A personal loan for debt consolidation is a way to streamline your finances, potentially lower the cost of your debt, and work toward a clear end date.
When we talk about personal loans for debt consolidation, we’re talking about a fixed-rate, unsecured loan that you use to combine multiple debts, typically high-interest credit card balances. Instead of managing several bills at different rates, you take out one loan and use it to pay off those balances, leaving you with one fixed monthly payment for the life of the loan.
How a personal loan for debt consolidation works
Here’s how a personal loan for debt consolidation typically works:
Apply for a personal loan, usually for the total amount of your unsecured debt balances.
Use the funds to pay off your existing balances. Some lenders send funds directly to creditors; others deposit funds into your account.
Repay one loan with one monthly payment at a fixed interest rate, with a set repayment term over several years.
Personal loans for debt consolidation are generally unsecured, meaning you apply based on your credit profile and financial situation rather than whether you own something valuable that you could borrow against.
What debts can you consolidate with a personal loan?
You could use a personal loan to consolidate different types of debt, including:
Credit cards
Retail store cards
Medical bills
Other personal loans
You can't use a personal loan to consolidate student loans. Student loans have their own consolidation options separate from personal lending.
You could consolidate secured debts such as car loans, but most people don’t. Secured debt is usually cheaper than unsecured debt. It wouldn’t make sense to consolidate a debt to a new loan that has a higher interest rate.
Potential benefits of consolidating debt with a personal loan
There are a few reasons people turn to a personal loan for debt consolidation.
Potentially lower interest rate. If your credit is good, you may qualify for a lower APR than what many credit cards charge. A lower rate typically means more of each payment goes toward the principal balance.
Fixed payments and a set end date. Unlike revolving credit card debt, a personal loan has a defined payoff timeline. You know when the debt will be paid off, which makes planning easier.
Simplified finances. Most people who consolidate debts end up with fewer monthly payments to manage, and fewer balances to watch.
Possible impact on credit utilization. Paying off revolving credit card balances with a personal loan reduces your credit utilization ratio—the share of your available credit you're currently using (assuming you don’t add new debt to those cards). Credit utilization is one factor in credit scoring, and a lower ratio may have a positive effect on your score over time.
What to consider before you consolidate
A personal loan for debt consolidation isn't the right fit for every situation. A few things worth considering include:
Origination fees. Some lenders charge an origination fee, which is a percentage of the loan amount that is deducted from the funds you receive. Factor this into your total cost when comparing options.
Longer terms increase total interest paid. The longer you take to repay a debt, the more interest you’ll pay over time. A lower monthly payment stretched over a longer repayment period may cost more in interest overall, even if you get a lower rate.
Creates available credit. Avoid running up new credit card balances after you consolidate. Otherwise, it’s possible to end up in a situation where you have even more debt than you started with. If you might be tempted to spend more than you can afford to repay each month, consider closing your credit card accounts while you pay down your debt consolidation loan.
Your rate offer matters. If you only qualify for a rate that's similar to or higher than what you're currently paying, consolidation may not improve your financial situation.
How to apply for a debt consolidation loan
Add up what you owe. List your unsecured balances, interest rates, and monthly payments to get a clear picture of your starting point.
Check your credit. Lenders consider your credit score and debt-to-income ratio. Knowing where you stand helps set realistic expectations before you apply.
Prequalify first. Scout lenders that offer a soft credit check that lets you compare rate offers without affecting your score.
Compare the full cost. Consider at APR, origination fees, and total repayment, not just the monthly payment.
Choose and apply.
To track your progress, use the GOOD app to stay on top of your goals.
Other ways to manage debt
A personal loan is one option. Depending on your situation, others may be worth considering.
Home equity loan. If you're a homeowner with equity, you may be able to borrow against that equity to consolidate debt at a lower rate. A home equity loan is a mortgage, which makes your home the collateral.
Debt management plan. A credit counseling agency may be able to help you set up a structured repayment plan. Creditors may agree to lower rates or waive fees. You would need to stop using enrolled credit cards while in the plan.
Debt relief. Debt relief or debt settlement involves negotiating with creditors to accept less than the full balance owed but consider it payment in full. A debt expert may be able to help you determine whether debt relief or another approach makes sense for your situation.
What's next?
Gather your info. Make a list of your unsecured debts, their balances, and their interest rates.
Prequalify for a personal loan. Check with lenders who offer a soft credit check to verify what you may be eligible for.
Ask for guidance. If you're not sure which path fits your situation, chat with a loan consultant.
Author Information
Written by
Rebecca is a senior contributing writer and debt expert. She's a Certified Educator in Personal Finance and a banking expert for Forbes Advisor. In addition to writing for online publications, Rebecca owns a personal finance website dedicated to teaching women how to take control of their money.
Reviewed by
James is a financial editor for Achieve. He has been an editor for The Ascent (The Motley Fool) and was the arts editor at The Valley Advocate newspaper in Western Massachusetts for many years. He holds an MFA from the University of Massachusetts Amherst and an MA from Hollins University. His book Krakatoa Picnic came out in 2017.
Frequently asked questions
Debt consolidation is one possible use for a personal loan. You could also consolidate debt in other ways, such as by getting a HELOC or using a balance transfer credit card.
A personal loan to consolidate debt may cause a small, temporary dip when you apply, due to the hard credit inquiry. Over time, paying down debt balances tends to have a positive effect on credit scores. The net effect depends on your overall credit profile.
Most lenders require a credit score somewhere between 620 and 680. A few lenders specialize in making loans to people with lower credit scores. In general, a higher credit score could help you qualify for lower interest rates. The best way to find out where you stand is to prequalify with a lender that does a soft credit check (the kind that doesn’t affect your credit score).
Yes, consolidating credit card balances with a personal loan is common. Personal loans have, on average, lower interest rates than credit cards. Depending on what rate you qualify for, you might be able to reduce the total interest you pay over time using this strategy.
Debt consolidation is when you get a new loan and use it to pay off multiple smaller existing debts. Debt settlement is when you negotiate with your creditor to accept less than the full amount you owe, and forgive the rest. Debt settlement is a strategy for someone experiencing financial hardship and struggling with their debt. Debt consolidation is a strategy for someone who can fully repay their debt.
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