Debt Consolidation With Personal Loans

Personal loans for debt consolidation can lower interests and reduce monthly payments. Learn if debt consolidation with a personal loan is right for you.

Choose Your Debt Amount

- OR -

Home > Debt Consolidation > Debt Consolidation With Personal Loans

Is this you? Losing the battle against your credit card balances? Surrounded by interest rates so high you can barely make minimum monthly payments? Bills to the right of you, bills to the left of you, more bills right in front of you?

We hope that isn’t you. But if it is, there might be a solution. Personal loans to consolidate all of those cannonball bills into one manageable monthly payment could lead you out of the high-interest debt bombarding you from all sides.

By borrowing enough money to pay off all your credit cards at once, you might be able to reduce the sum of your current monthly bills as well as the total interest you’re paying on them. It could be your escape hatch, your route to wriggle away from those creditors closing in on your bank account.

A personal loan for debt consolidation just might work for you. Trouble is, it might not, too.

So how do you decide if it’s the best option? Start by asking yourself some tough questions. Am I capable of living without my credit cards while I’m paying off the personal loan that eliminated their balances in the consolidation? Is my credit score strong enough to get a reasonable interest rate on a personal loan?

Read on and we’ll flesh out personal loans as a way to consolidate debt.

Are Debt Consolidation and Personal Loans Different?

Debt consolidation loans are a form of personal loans, but there are differences you’ll need to review.

Personal loans work in pretty simple fashion. You go to a bank, credit union or an online lender – or maybe even a relative or a friend – and ask to be floated money in a lump sum in exchange for a promise to pay it back with interest in a certain amount of time.

Generally, a personal loan doesn’t require you to put up much, if anything, in the way of collateral, so you shouldn’t need to use your car or home to secure the loan.

But you might not be as familiar with debt consolidation loans. You get them from the same institutions or people that provide personal loans. They’re similar in that both require payments to be made at regular intervals (usually monthly) and neither insists on hefty collateral. Too, they both can have a slight negative effect on your credit score when you apply for them, and in both cases that damage goes away as you establish your reliability about paying the loan back.

There is one significant difference, though, between a personal loan and a debt consolidation loan. You can use a personal loan for pretty much anything, such as paying medical bills, funding a home improvement project, making any large purchase, or paying off your credit cards (the subject at hand).

A debt consolidation loan, on the other hand, can only be used to pay off two or more existing high-interest debts such as credit cards. The lender only approves a debt consolidation loan for that specific purpose. In some cases, the money from a debt consolidation loan goes straight from your lender to the creditors you owe, rather than to you first.

Pros and Cons of Personal Loans for Debt Consolidation

OK, that’s enough background. Time to get to the nitty-gritty. If you’re looking for a way to climb out of debt, you want to know why a personal loan is the right way to address all those monthly payments. Or why it isn’t the right approach for you.

As you might expect, there are both advantages and disadvantages to using a personal loan to consolidate your credit card bills.

As you read over our list of pros and cons, apply them to your specific financial situation. That should help shape your thinking.


Among the advantages of the right personal loan are: 

  • It’s simple: You’ll only be making one monthly payment instead of trying to keep track of an overflowing fistful of bills from all your creditors.
  • It’s generally quicker: The payback term for a personal loan is usually 3-5 years, so you’ll have a fixed date for when you’ll be free of your debt. If you’re only making minimum payments on your credit cards now, you might not be able to see the end from here.
  • It reduces the amount you pay monthly: If you structure your debt consolidation in a way that spreads out the payments on your personal loan over an extended term, you’ll have more money left over month to month.
  • It lowers your interest rate: The interest rate on the right personal loan could be as much as 50% lower than the exorbitant interest rates you’re currently paying on your plastic.
  • It can help raise your credit score: Assuming you make the payments in full and on time, taking on a personal loan is a good way to improve credit.


Among the possible drawbacks of a personal loan to consolidate debt are:

  • Its suitability depends on your credit score: If you have a history of missing payments on your debts, your credit score might not be strong enough to get you approved for a loan that makes financial sense for consolidation.
  • It could come with heavy fees: You’ll need to read the fine print and ask your lender the right questions to make sure you won’t be overburdened with extra costs such as application and origination fees, or penalties for late payments or for paying off the loan early.
  • It might come with a high interest rate: Be aware that a personal loan to consolidate your credit card debts generally will only work for you if the interest rate on the loan is lower than the rates you’re paying on the debts you’re consolidating. Be sure it is.
  • It could cost you more in interest, even at a lower rate: While one of the advantages is that your monthly payments should be reduced, the total interest you’ll pay could be greater than the interest on your credit cards if you extend the length of the repayment period for too long.
  • It might require collateral: Most personal loans don’t, but some do. Make sure you understand what’s at stake when you take a secured loan. You’ll likely get a lower interest rate, but if you can’t pay the loan back, you run the risk of losing your car, your house or whatever other property you’ve pledged as collateral.
  • It calls for self-discipline: You need to remember that you’ve used the personal loan to eliminate the balances on your credit cards. You defeat the purpose if you continue to use those credit cards and rack up new debt during the term of the personal loan. Do that, and you’ll be even deeper in the hole.

Should I Get a Personal Loan for Debt Consolidation?

Will it work for you? Is it smart to get a personal loan to consolidate debt? The first order of business in getting to that answer is to see what kind of interest rate you can get on the personal loans for which you qualify.

When you know that, you can compare it to the interest rates you’re currently carrying on your credit cards and other debts. If the rate on the loan is lower than what you’re paying right now, then a personal loan might be the armor you need against those cannonballs your creditors are firing at you every month.

The rate on the personal loans you can get will be determined by the state of your credit score, your credit history and your future earning prospects.

Here are the circumstances in which using a personal loan for debt consolidation is a good idea:

  • When your credit score is higher than 680. A higher credit score will result in better terms on the personal loan.
  • When the loan you can get carries an interest rate below the rates you’re paying on your other debts.
  • When the monthly payment on the new personal loan is lower than the total of the monthly payments you’re making on the debts you intend to consolidate.
  • When you’re confident you’ll have the ability to make at least the regular minimum payments for the duration of the new personal loan.
  • When you are able to resist taking on other major debts, including the debts that would come from running up new balances on the credit cards you’re paying off with the new personal loan.
  • When you’re comfortable with creating a budget and sticking to it.

Get Help Consolidating Your Debt

We’ve just laid out a bunch of thoughts about personal loans as a way to consolidate your debt, and we hope they help. But here’s the thing. Two things, really. No, three!

The first is that everyone’s financial situation is different. Your debts aren’t the same as your neighbor’s debts in the apartment down the hall. The two of you might be approved for the same personal loan, but it won’t have the same impact on your debt consolidations. We’ve given you some general observations, but the truth is that no two cases are the same.

The second thing is that these calculations aren’t easy. Interest rates. Monthly payments. Loan terms. It’s one thing to say they’re important in your decision about debt consolidation; it’s another to know exactly how all that math should fit together.

And here’s the third thing. There are other ways to consolidate debt besides a personal loan, including balance trnsfer credit cards, home equity loans, debt management plans, and borrowing from a retirement plan or a bank savings account. We won’t get into them here; they’re for another day. The point is, there are various options to consider if you’re looking to get out of debt.

At the end of the day, the best advice we can give you is to reach out to an expert for one-on-one debt consolidation help.

Credit counseling is an excellent starting point for finding the right debt-relief solution to your specific problems. A certified credit counselor from a nonprofit credit counseling agency will help you review all your options, talk you through the debt vs. income arithmetic of a personal loan, and work with you to develop a personalized plan to right the course of your finances.

About The Author

Michael Knisley

Michael Knisley was an assistant professor on the faculty at the prestigious University of Missouri School of Journalism and has more than 40 years of experience editing and writing about business, sports and the spectrum of issues affecting consumers and fans. During his career, Michael has won awards from the New York Press Club, the Online News Association, the Military Reporters and Editors Association, the Associated Press Sports Editors and the Sports Emmys.