Key Takeaway: Debt consolidation combines multiple debts into a single new debt that you repay with one monthly payment. You may be able to do this with a debt consolidation loan, balance transfer credit card or home equity loan. Debt consolidation can simplify your finances and help save you money.
If you want to reduce or eliminate debt, debt consolidation could help streamline your finances by rolling multiple balances into a new account with a single monthly payment.
Consolidating debt can be a convenient alternative to juggling multiple payments each month. And it might help you save money if you’re able to qualify for a rate that’s lower than the combined rate you’re paying on your existing accounts.
If you’re wondering if you may qualify, you can check your Approval Odds on Credit Karma.
- How does debt consolidation work?
- What’s the best way to consolidate debt?
- Does debt consolidation hurt your credit?
- Our picks for debt consolidation loans
- Next steps: What are my other options for debt consolidation besides a loan or balance transfer card?
- FAQs about debt consolidation
How does debt consolidation work?
Debt consolidation can make managing your payments easier by combining multiple debts into a new loan or credit card.
The funds from the new account are used to pay off your existing balances. Instead of making multiple debt payments each month, you make one payment according to the terms of the agreement of the new loan or card.
Since you’re applying for a new account, you must meet the lender’s eligibility requirements to qualify. If you’re not eligible for an interest rate that’s lower than the combined rate you’re paying on your existing accounts, you could end up paying more in interest charges — so consolidating your debt may not be worth it.
But if consolidation is the right solution, it’s important to have a plan for repaying your debt before you get started. When you consolidate debt into a new loan or credit card, you free up space on your existing credit cards that can be used to buy more.
What’s the best way to consolidate debt?
There are multiple ways to consolidate debt. The solution that’s right for you depends on factors such as how much debt you have to repay, your credit and the interest rates on your current accounts.
How does a debt consolidation loan work?
A debt consolidation loan is a personal loan that’s used to combine multiple balances into a single new account. It can be used to pay off all kinds of debt — including credit card balances, medical bills and more.
Unlike credit cards, which are a form of revolving credit, debt consolidation loans are installment loans. You borrow a set amount of money and pay it back — with interest — typically in equal installments throughout the life of the loan.
Debt consolidation loans are available from banks, credit unions and online lenders. Loan amounts vary by lender but often range from $1,000 up to $100,000. Interest rates typically don’t exceed 36% (though you should be wary of a rate that high). The amount and rate you may qualify for depends on your credit.
Because loan rates can vary by credit profile, monthly payments can differ widely depending on credit score range and loan term.
Average monthly payment for a $20,000 unsecured personal loan by term and credit score range
Source: Aggregate TransUnion credit report data from Credit Karma members with active personal loans. Data was pulled on Sept. 24, 2026. Amounts shown are estimated monthly payments in USD.
1–12 months
- Excellent: $1,760.14
- Good: $1,806.48
- Average: $1,853.68
- Poor: $2,066.81
13–24 months
- Excellent: $904.85
- Good: $920.54
- Average: $946.88
- Poor: $964.41
25–36 months
- Excellent: $642.01
- Good: $667.98
- Average: $701.34
- Poor: $719.62
37–48 months
- Excellent: $515.52
- Good: $537.98
- Average: $566.81
- Poor: $584.48
How does a balance transfer card work?
A balance transfer card lets you move balances from one or more credit cards to a card with a lower rate. Some balance transfer cards have limited-time, 0% APR or low-interest introductory offers that are available as long as you make your payments on time. But if you’re late with a payment, the credit card company may revoke the offer and apply interest to your card balance.
If you decide on a balance transfer, it’s important to make sure you can pay off the amount you transfer before the promotion expires to avoid racking up additional interest charges. If you don’t repay the amount you transfer before the introductory period ends, the remaining balance will typically accrue interest at the card’s regular APR.
Plus, some cards charge a balance transfer fee, which adds to the amount you owe. If you opt for a balance transfer, the amount you transfer plus fees can’t exceed your credit limit, which means you may not be able to consolidate all of your debt, depending on how much you owe.
It’s important to note that some card companies don’t allow customers to transfer balances between cards they issue. If you want to complete a balance transfer, look for cards offered by different companies than the cards you already have.
Check out our balance transfer calculator to find out how much you might save with a balance transfer.
How does a home equity loan work?
Home equity loans and HELOCs let you borrow money against equity you have in your home. If you can get a lower mortgage rate than you currently have, you might also consider a cash-out refinance loan. With a cash-out refinance, a new loan replaces your existing mortgage, and you get cash back from part of the equity you’ve built up over time.
You can use the funds from a home equity loan, HELOC or cash-out refinance to pay off existing debt.
You may be able to get a lower interest rate on a home equity loan, HELOC or cash-out refinance than a personal loan or credit card since it’s secured by your house. But these types of loans are risky because if you can’t make your payments, your lender may have the right to start foreclosure proceedings, and you could lose your house.
Does debt consolidation hurt your credit?
The impact debt consolidation will have on your credit depends on your financial situation and credit history. There are five major factors that can affect your credit scores. Here’s a look at each of them and how debt consolidation may affect them.
Payment history
Your payment history is a critical factor used in the calculation of your credit scores. If you’re struggling to make multiple debt payments each month, consolidating your debt into a single monthly payment — simplifying your budget — could lead to more on-time payments, which may improve your scores. On the flipside, if a consolidated debt payment is more than your budget can handle and you miss payments, your credit scores may suffer.
Amounts owed
Your credit utilization is the ratio of your available credit compared to the amount you’re using. Experts typically recommend keeping this ratio below 30%. If you’ve maxed out — or are close to maxing out — your credit cards, consolidating your balances could help lower your credit utilization, which may have a positive effect on your credit scores.
Length of credit history
The longer your credit history, the better. Opening a new account decreases the average age of your credit history, which may lower your scores slightly. Even if you open a new account to consolidate debt, you don’t want to close your oldest accounts since that can hurt your scores.
Credit mix
The types of accounts you have — including credit cards, installment loans, mortgages and more — also help determine your credit scores. Having a variety of accounts typically has a favorable impact on your credit scores.
Hard inquiries
Hard credit inquiries occur when you apply for new credit and usually lower your credit scores by a few points — but the effect on your scores doesn’t usually last very long. Consistently making your payments on time and lowering your credit utilization will likely have a bigger impact on your scores than a single inquiry.
What are the best loans available for debt consolidation?
The best debt consolidation loan depends on your credit, how much you want to borrow and how quickly you need the funds. Unsecured personal loans are typically preferable to secured personal loans since they don’t require collateral like a vehicle or other property. You can prequalify before officially applying to see what rate and terms you may qualify for.
Happy Money
Why Happy Money stands out: Happy Money’s personal loan is designed to help people eliminate high-interest credit card debt.
Happy Money’s lowest interest rates are much lower than the average APR for credit cards that are assessed interest. Qualifying for a lower rate can help reduce the amount of interest you owe while you pay down your debt. But if you aren’t eligible for a lower rate, you could pay an APR that’s similar to what your credit cards charge.
Read more reviews of Happy Money personal loans to learn more.
Wells Fargo personal loan
Why Wells Fargo stands out: Unlike some personal loan lenders that cap loan amounts at $40,000 or less, Wells Fargo offers unsecured debt consolidation loans of up to $100,000. Wells Fargo offers competitive personal loan rates that could include a relationship discount of 0.25%. But keep in mind that you’ll need to be a bank customer to apply online for a personal loan.
Read more Wells Fargo personal loan reviews to learn more.
Avant
Why Avant stands out: You don’t need to have perfect credit to qualify for a debt consolidation loan with this lender. Avant says most of its customers have credit scores between 600 and 700. Because Avant considers people who have less-than-perfect credit, its interest rates are higher than those offered by some other lenders. If you have good credit, you’re probably better off applying with a lender that offers lower rates.
Read more reviews of Avant personal loans to learn more.
Next steps: What are my other options for debt consolidation besides a loan or balance transfer card?
If you want to pay off debt but you don’t think debt consolidation is your best bet, there are some other options to consider.
- Debt settlement — Debt settlement companies work with creditors to settle your debt for less than what you owe. But they often advise clients to stop making their payments, which can add interest charges and late fees to your balance. Plus, missing payments can negatively affect your credit scores.
- Negotiating with creditors — Your creditors may be willing to work with you by waiving late fees, decreasing your interest rate, extending your repayment period or reducing the total amount you owe.
- Debt management plan — A debt management plan is a tool that’s often used by nonprofit credit counseling agencies. The agency negotiates a repayment plan with your creditors, which may include reduced interest rates and fee waivers. You make one monthly payment to the credit counseling agency, and the agency pays your creditors.
- Loan forbearance — If you’re experiencing a financial hardship, you may qualify for loan forbearance, which temporarily suspends or reduces your payments.
FAQs about debt consolidation
Whether a debt consolidation is a good idea depends on whether you can receive an interest rate that’s lower than your combined interest rates on existing debt. You’ll also want to calculate the cost of any fees like an origination fee or balance transfer fee. And you’ll need to make sure you can afford the monthly payments so you don’t damage your credit with missed payments.
Debt consolidation loan amounts vary by lender but often range from $2,000 to $50,000. Some lenders offer loans up to $100,000. But how much you qualify for will depend on factors such as your credit, income and employment history.
Debt consolidation pays off your existing balances using a new loan or credit line. You still owe the full amount, just to one lender instead of several. Debt settlement means a company negotiates with your creditors to let you pay less than what you owe, but it typically requires you to stop making payments first, which can rack up late fees and interest and hurt your credit scores in the meantime.