Debt Consolidation Loans

A debt consolidation loan replaces multiple high-interest debts with a single, ideally lower-interest loan. Done right, it simplifies payments and reduces total interest. Done wrong, it delays debt payoff and costs more.

How Debt Consolidation Loans Work

You take out a new personal loan large enough to pay off your existing debts — credit cards, medical bills, personal loans. You then make one monthly payment on the new loan instead of multiple payments on multiple accounts. The benefit: if the new loan's APR is lower than your current average rate, you pay less in interest and potentially pay off faster.

When It Makes Sense

Debt consolidation works when:

• Your new loan's APR is meaningfully lower than your current average rate (at least 3–5% lower)
• You have a fixed payoff date you're committed to
• You won't run up new balances on the cards after consolidating
• You're disciplined enough to make the new loan payment every month

When It Doesn't Work

• You consolidate and then continue charging on the now-zero-balance cards, ending up with more total debt
• The new loan's term is so long that even a lower rate results in paying more total interest
• You consolidate at a rate that isn't actually better than your current rates
• Origination fees on the new loan eat most or all of the interest savings

Rates You Can Expect

Debt consolidation loan APRs depend heavily on your credit score:

• 720+: 6–12%
• 670–719: 12–18%
• 620–669: 18–28%
• Below 620: Often above 30% — likely not worth consolidating

If your credit score is below 650, consolidating may not lower your rate enough to justify it. Focus on credit improvement first, then consolidate when you can qualify for better rates.

Best Lenders for Consolidation

Credit unions typically offer the best rates. Online options include: LightStream (excellent credit, very low rates), SoFi (good credit), Upstart (thin/fair credit), Discover Personal Loans (good credit).

Avoid consolidation companies that charge upfront fees or require you to enroll in a "program" — the loan itself is the product, and any legitimate lender deducts fees from the loan proceeds at closing, not before.

Use our Debt Payoff Calculator to compare payoff timelines, or our DTI Calculator to check if your existing debt load affects your loan eligibility.