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How to Get a Personal Loan for Debt Consolidation

Paying off multiple debts is made simple with a personal loan for debt consolidation. Here’s what you need to know about getting a personal loan for debt consolidation.

personal loan for debt

If your bills are piling up and you find yourself struggling to catch up on your monthly payments, you may consider getting a personal loan for debt consolidation. This type of loan is designed to help borrowers pay off multiple high-interest debts by combining them into one lump sum that you can pay back over time, often at a lower rate. Let’s take a closer look at what a personal loan for debt consolidation is and what you need to qualify.

What Does it Mean to Consolidate Credit Card Debt?

Consolidating credit card debt is the process in which you combine all of the debts you have from various credit cards into one monthly payment by taking out a new loan. 

This is an attractive option for those who have high-interest debts like various credit card bills. By reorganizing your debt, you can simplify your payment process and often pay it off faster. 

What You Need to Know About Debt Consolidation Loans

A personal loan for debt consolidation is, essentially, a refinance loan that extends the length of time for repayment for your existing obligations. It lets you combine multiple debts into a new, separate loan that consolidates all of your outstanding balances in one monthly payment. Debt consolidation is appealing to many not only because it simplifies your monthly payment process, but it often comes with lower interest rates. If you’d like to learn more about the debt consolidation process, check out our step-by-step guide.

Debt consolidation can be used to tackle both secured and unsecured debt. Credit cards, payday loans, medical bills, and personal loans are all examples of unsecured debt. A HELOC, or Home Equity Line of Credit, is a type of secured debt, with your home or property serving as collateral.

Be aware that because debt consolidation extends your repayment terms, you may be in debt longer under that one new loan. Whatever your financial situation is, weigh the pros and cons of paying a little less over a longer period of time with a debt consolidation loan. 

Ways to Consolidate Credit Card Debt

Here we’ll cover two ways to consolidate your credit card debt: Balance transfer credit cards, and debt consolidation loans.

Balance Transfer Credit Cards

The first way to consolidate credit card debt is through a balance transfer credit card, which is appealing because it often has a zero or low annual percentage rate. 

However, this requires you to transfer all of your debts onto one card and pay the balance back in full during a specific time frame, which usually only lasts 6 to 18 months. This is a good idea for those who have excellent credit and are confident in their ability to pay back their balance within that time. Borrowers should know that if they don’t pay their balance within that time-frame, they could be slapped with an average rate of 21% or higher on the remaining balance.

Debt Consolidation Loans

The second way to consolidate credit card debt is through a debt consolidation loan. You can use the loan money to pay off your debt, and then pay back the loan in chunks over a set term. In most cases, the interest rate on a personal loan is lower than the one on your credit cards. 

Through a personal loan, you consolidate all of your credit cards into a fixed-rate, fixed-term personal loan, enabling you to put more cash toward your principal balance so you can pay less interest.

Benefits of Consolidating Credit Card Debt with a Personal Loan

While debt consolidation does indeed require you to take out a new loan, it comes at a lower interest rate which can help you pay off your balance faster.

Simplicity

One of the main benefits of debt consolidation through a personal loan is the simplicity of only having one monthly payment. Since you’ve combined all of your credit card debts into one payment, you won’t have to worry about paying off multiple cards in a month or even setting up automatic payments for various cards. These loans also have no pre-payment penalty, so you can pay off the balance at any time.

Plus, since you only have one ongoing payment, you are less likely to fall behind on your payments–which can help improve your credit score over time.

Getting a Personal Loan for Debt Consolidation

To get a personal loan for debt consolidation, you need to start by applying with a traditional or online lender, who will review your creditworthiness to determine whether you qualify for the loan. If you do qualify, the lender will set your monthly interest rate, which is typically based on your credit score.

Your FICO Score

If your FICO score is 670 or higher, you’re in the good-to-excellent range, which means you’ll likely be approved at a lower rate. If your credit score is 669 or lower, you’re in the fair-to-poor range and may want to hold off on getting this loan to avoid a high monthly interest rate. See what your options are for improving your credit score and consider applying again when your score has improved.

“Lenders often see people in ‘poor’ credit ranges as risky, and as a result, might not issue a new loan to someone in that range,” according to the consumer credit reporting agency Experian. If your FICO score is in that fair-to-poor credit range and you’re approved to consolidate your debt, “the interest rate on your new loan could, in some cases, be higher than the APR on your existing debt.” Be sure to talk to your lender about your options so you can make the best financial decision for your situation. 

Is a Personal Loan for Debt Consolidation Worth It?

If your FICO score is good and you’re prudent about your spending, then using a personal loan for debt consolidation could help you save money on interest and settle your outstanding balances without the chaos of multiple monthly bills.

Improving your relationship with money and getting educated about creating a healthy financial life is a slow and steady process. If you’re interested in a debt consolidation loan, get a good grasp of your current financial state and talk to your lender about which options are best for you. After all, a personal loan for debt consolidation is meant to help you simplify your financial plan – not complicate it.

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