Personal Loan
Personal Loan

How to Use a Personal Loan to Consolidate Debt

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Have a lot of debt? Does it have a high interest rate? 

You might want to consider consolidation.

By consolidating debt with a personal loan, you could potentially pay off what you owe sooner. Not only is that more convenient, but it can also help you improve your credit in the long run.

Learn more about why you might want to use a personal loan to consolidate debt and how to go about doing so in this guide. 

Consolidate Debt with a Personal Loan
Consolidating debt means combining it all into one loan. You can use a personal loan to consolidate unsecured debt so you can more effectively pay down what you owe.

Defining Debt

There are many different kinds of debt that people might have. 

Debt that is backed by some sort of collateral is called secured debt. Examples of this might be a car loan or a home mortgage. Your home mortgage is backed by your home—if you stop paying your mortgage, the bank may take your home. Similarly, your auto lender may repossess your car if you stop paying on your auto loan.

Unsecured debt is debt that you are liable to pay and you have agreed to pay. Examples of this are credit cards, student loans, or personal loans. If you stop paying on your credit card, the bank can cancel your card and try to get their money back, but they can’t take your home or throw you in jail.

What is a Personal Loan?

A personal loan is one type of unsecured loan that is available to people who qualify.

 In some ways, a personal loan is similar to a credit card in that both are unsecured loans. One big difference is that with a personal loan, the amount of the loan, the interest rate and the term of the loan are usually set upfront. 

Generally, you will receive a lump sum upfront, and then have the same monthly payment until the loan is paid back, usually between 12 to 60 months. The terms and interest rates on personal loans vary on a number of factors. These include your credit score, the amount of the loan, and the length of the personal loan.

How You Can Use a Personal Loan to Consolidate Debt

If you have a lot of unsecured debt with high-interest rates, it may make sense to use a personal loan to consolidate that debt. This could be outstanding credit card balances, a used car loan or unpaid medical or other debts. 

Generally, the interest rates on these types of loans is higher than what you would get with a personal loan. 

Personal loan rates can be as low as 5.99% or even lower. It depends on your credit profile and the length of the loan. If you have a significant amount of credit card or other debt with interest rates of 18-24% or higher, you can see how you would be able to save a significant amount of money by consolidating your debt into a personal loan with a much lower interest rate. You can also simplify your life by having just one monthly debt payment instead of having to stay on top of multiple different payment due dates and amounts.

Pro Tip: If you have a loan or credit card, you can check out Mint’s free Loan Repayment Calculator to determine interest amounts or if a loan or credit card is right for you before applying.

What Does It Mean to Consolidate Debt?

Debt consolidation is when you combine all your debt into a single loan.

Let’s say you have credit card debt of $2,000, a student loan of $10,000, and an auto loan of $5,000. If you were to consolidate this debt, you would take out a loan for $17,000 and pay off the three debts simultaneously. Then you would pay back the $17,000 loan.

When you consolidate debt, you’re combining all of your debt into one payment plan that’s easier to manage.

How to Decide on a Lender

There are a few different factors you can compare when you’re shopping for a lender:

  • APR: Search for a loan that has the lowest-possible annual percentage rate. The APR is charged on top of your monthly principal and may add significant cost to the loan. It can range anywhere from 10% to 20%, and is usually determined by your credit score. Higher credit scores tend to earn a lower rate.
  • Loan Terms: Some lenders only offer two types of repayment terms: three-year or five-year. Other lenders may offer a greater variety of loan terms to choose from. Sometimes it’s better to seek a lender that offers more types of debt repayment options. You’ll be better able to customize the loan to suit your needs and fit your budget.
  • Loan Cost: Debt consolidation loans may incur origination fees and other charges. See if you can find a loan that has little to no extra charges. Also be aware of collateral requirements or prepayment penalties (if you pay off your personal loan earlier than stipulated).
  • Lender Benefits: Lenders may provide special perks that make the debt consolidation process easier for you. They might offer to make direct payments to your creditors, give you a rate discount, or provide you access to credit monitoring or hardship programs.

You can look at our list of the best personal loan lenders as a place to start.

Potential Alternatives for Debt Consolidation

Debt consolidation is not the right financial move for everyone. 

You might have difficulty paying off a debt consolidation loan if your debt exceeds 50% of your gross income or if you have spending issues that you haven’t been able to rein in. You might also have difficulty qualifying for a debt consolidation loan if your credit score is in poor standing (credit score less than 580).

It’s worth looking into a few alternatives to debt consolidation:

Balance Transfer Credit Card

If you’re capable of paying off your debt quickly, you can use a credit card to do a balance transfer. This might be a better option than debt consolidation, depending on your circumstances. 

You can transfer your debt to a new credit card that has a 0% introductory rate, and you won’t have to pay interest for a short time. You’ll pay off the debt before the rate expires and save money on interest.

This type of balance transfer uses simple interest to charge an amount up front when the transfer happens. 

For example, 2.99% interest is charged on $10,000. That $299 would be included as a separate charge on your credit card statement, so in total, you would repay $10,299 for the zero % transfer.

Home Equity Line of Credit

A home equity line of credit that uses your home as collateral. This revolving line of credit is typically used for larger purchases. 

Debt Management Plan

Debt management plans (also known as DMPs) are offered by credit counseling services. 

Under a DMP, you’ll make a monthly payment to the credit counseling agency, which will then split the payment between all your creditors. You’ll often have to pay a setup fee and a monthly service fee on top of that. 

However, it can be a helpful option if you’re having difficulty figuring out how to structure your debt payments.

Debt Settlement Companies

You can enlist the help of a debt relief service, also known as a “debt settlement company”, to reach out to creditors and debt collectors. They’ll bargain on your behalf and try to reach an agreement that lowers the amount you owe.

Debt relief is a risky move that can hurt your credit score, and many debt relief companies charge very high fees. However, if you’re unable to pay your debt, then it might be a better option than facing potential bankruptcy.

How Debt Consolidation Affects Credit

Debt consolidation loans typically have little effect on your credit score. Your credit score may take a slight dip when you take out the loan, but it will most likely be temporary. 

If a debt consolidation loan helps you pay off all your existing debt, then it could potentially improve your credit score in the long run.

Remember that debt consolidation is most helpful for those who already have a higher credit score and can secure a low interest rate on their loan. It may not be the most effective way to boost your credit score if you have poor credit standing.

Pros and Cons of Consolidating Debt with a Personal Loan

Let’s explain the pros and cons of using personal loans to consolidate debt.

Debt Consolidation Pros

  • Saving Money: Debt consolidation could save you money by lowering the amount you pay in interest.
  • Faster Payoff: Depending on the terms of your loan, you might be able to pay off your debt faster, or at least choose a repayment plan that better suits your budget.
  • Easier to Manage: Managing one loan is often easier than managing several different loans with varying payment dates and interest rates.
  • Transparent Payoff Date: When you consolidate your debt, you’ll have a clear date by which you’ll be debt-free, which can be highly motivating.

Debt Consolidation Cons

  • Can’t Solve All Problems: Debt consolidation won’t solve all your financial problems. Financial issues like overspending or low earnings may lead to growing debt, and these are better treated using other financial solutions—for instance, better budgeting habits or creating a passive income.
  • Not for Those with Poor Credit: Debt consolidation may be unhelpful if you have a low credit score or if you’re truly struggling to pay your debt. Debt consolidation could saddle you with even higher monthly payments and interest rates.

How the Mint App Can help

Using the Mint App can help you consolidate your debt and track your payments. Whether you have multiple different loan payments or just a single consolidated payment, the Mint app can track your payment dates and amounts. That will help make sure that you don’t miss a payment. 

The Mint app can also help you see the interest rates and balances on your different debts. That can help you decide whether the debt snowball or debt avalanche method of repaying your debts makes the most sense for you.

The Bottom Line

A personal loan is unsecured and not usually backed by any form of collateral other than your promise to repay. Unlike a credit card, where you have access to a revolving amount of credit up to your total credit line, with a personal loan, you get a fixed amount of money upfront. You then pay it back with periodic equal monthly payments until the loan is completely paid back. 

Should I take a personal loan to consolidate debt? Interest rates on personal loans are usually lower than rates on credit cards or other types of unsecured debt. So if you have a significant amount of high-interest debt and are ready to start paying it off, using a personal loan to consolidate credit card debt may make sense for you. That way, you can consolidate all of your credit cards and other high-interest debts into one monthly payment. Hopefully, at a much lower interest rate.

Shop around to find the best personal loan to consolidate debt. 

Save more, spend smarter, and make your money go further

Dan Miller
Dan Miller

Written by Dan Miller

Dan Miller is a freelance writer and founder of, a site that helps families to travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids. More from Dan Miller