Table of Contents

    Debt Consolidation Loans

    Debt Consolidation

    Many people often have to deal with multiple liabilities such as credit card debts, student loans, and plenty of other short-term obligations. Each of these will have different payment due dates along with different interest rates, which can complicate your finances.  

    Keeping tabs on the various due dates can be difficult. However, by taking a personal loan for debt consolidation, you can combine all your liabilities and multiple debts into a single monthly payment, reducing your complication and monthly expenses. One major benefit of consolidation loans is that the total monthly interest could be lower than the combined interest paid on the existing short-term debts.

    What is a Debt Consolidation Loan?

    A debt consolidation loan is an unsecured personal loan available to borrowers with a fair or better credit score. The borrower uses the loan to pay off debt from multiple credit accounts to remain with a single, easier-to-manage loan. The best debt consolidation loans will normally offer a shorter repayment term and a lower monthly payment.

    Should You Use a Debt Consolidation Loan? 

    Taking a personal loan for debt consolidation may be a good idea in certain situations, but not necessarily every scenario. You can access the best debt consolidation loans if the total from your multiple debts does not exceed 40% of your gross income. Your income should also cover paying the installments for your loan consistently, and ideally your credit score should qualify you for either a 0% credit card or a loan with low interest.

    Still, using a debt consolidation loan is not a good idea if you have too many debts whereby taking another loan will not repay all your existing debts. Avoid taking a personal loan for debt consolidation if you have excessive spending habits and the total debts exceed 50% of your gross income. Instead, take measures to improve your spending habits that created debt in the first place. In such an instance, try using proven debt management strategies such as the debt avalanche or the debt snowball method.

    You don’t always need to use a debt consolidation loan if your loan amounts are small. Chances are, if you have a consistent repayment history, you can readily pay off existing debts by maintaining your current repayment pace.

    Pros & Cons of Debt Consolidation Loans 


    • Personal loan consolidation makes it easier to manage debt.
    • Debt consolidation loans usually have a lower APR compared to credit cards.
    • The best debt consolidation loans have lower monthly interest payments than the total interest of the existing outstanding loans.
    • Debt consolidation loans pose less risk of damaging your credit score.
    • Interest on debt consolidation loans may be tax-deductible in certain circumstances.
    • There is no risk of asset loss with an unsecured debt consolidation loan.


    • Some debt consolidation loans may have prepayment penalties.
    • They are not a solution for poor money management.
    • Secured debt consolidation loans carry a risk of asset loss.
    • Borrowers with a low credit score may find it hard to secure a personal loan with low interest.

    How To Qualify for a Debt Consolidation Loans 

    Debt consolidation loan companies base loan qualification and approval on the credit score. There are a few methods, however, that can improve your likelihood of approval:

    • Improve your credit score by paying monthly debts before the due date. You can also lower your credit utilization rate by paying down your credit card balance, which will help boost your credit score.
    • Do not settle for the first personal loan offer you receive. If you are searching online, carry out a soft credit check and compare rates from different lenders. In addition, read the fine print and compare the terms and fees.
    • For borrowers with a poor credit history, getting the best personal loan for debt consolidation can prove difficult. This is because most debt consolidation loans are unsecured. Consider applying for a secured loan. It is much easier to get approved and generally features a better interest rate.

    Our Top 3 Debt Consolidation Loans

    • No fees
    • Low interest rate
    • Fixed Rates
    • Min credit score of 680
    • Unemployment protection
    • SoFi member benefits
    • Amin. fee: 1.5% - 6%.
    • Annual income of $30,000
    • Min credit score of 600
    • Accept Co-signers
    • Hardship plans
    • Credit health tool
    • Administrative fee: 4.75%
    • Annual income of $20,000
    • Min credit score of 580
    • Failed payment fee: $15
    • Day of Grace: 10 days
    • Grace period fee: $25

    How To Get the Best Rate?  

    Borrowers with good to excellent credit scores can access personal loans at lower interest rates. It pays, therefore, to improve your credit score. Ensure that you pay your debts on time and pay down your credit card balance, which will ultimately boost your credit score.

    Secondly, when searching online, compare rates from different lenders. Read the fine print as well to compare the terms and fees.

    If you are considering getting a personal loan from a lending institution, keep in mind that credit unions may offer better rates than banks given credit unions prioritize their members over profits.

    Debt Consolidation Loans Alternatives 

    There are debt consolidation loan alternatives including:

    • Debt Management Plan – a debt management plan only addresses credit card debts with a repayment period that lasts between 3 to 5 years.
    • Home Equity Loan – with a home equity loan, you can consolidate your debts by borrowing against your home’s equity.
    • Home Equity Line of Credit (HELOC)- a Home Equity Line of Credit allows you to borrow against the equity in your home. After repaying, you can borrow again to pay any other debts.
    • Cash-out Refinance – with a cash-out refinance, you can take a loan amount that is more than the value of your house.
    • Balance Transfer – a balance transfer allows you to move debt from multiple credit cards to one with the lowest interest rate.
    • Debt Settlement – You can negotiate with creditors and get them to settle for a lesser debt than you owe.
    • Bankruptcy – filing for bankruptcy will offer you protection from creditors for between 3 and 5 years.

    Debt Consolidation Loans vs. Credit Cards

    If you are searching for a highly effective method for dealing with multiple debts and high-interest credit cards, you have the option of choosing between a personal loan and a credit card. While the results may seem similar, their approach is different and the one you choose will depend on your personal circumstances.

    Debt consolidation loans involve taking a single loan to pay multiple debts simultaneously. The borrower then has a single loan to pay every month. The smarter option for a borrower is to conduct a personal loan comparison to uncover the best rates. A personal loan for debt consolidation will have a specific loan term, fixed monthly payments, and fixed interest rate.

    Credit card refinancing, on the other hand, involves transferring credit balances from one or multiple cards to a single card with more favorable rates and terms. This is commonly called a balance transfer. The major benefit of balance transfers is obtaining a lower interest rate.

    Balance transfers may not necessarily be the best option when you want to get out of debt since all you are doing is moving the balance from one card to another. To get the most out of debt consolidation, it’s important to think about eliminating existing debt, not continuously shifting it around. 

    Read more about 4 ways debt consolidation loans can go wrong