5 debt consolidation options
How to combine multiple debts into a single payment
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Outside of debt consolidation loans and balance transfer credit cards, there are a few other ways to combine your debts and pay them off faster. Home equity lines of credit, debt management plans and peer-to-peer lending can also help you manage your finances more effectively.
Debt consolidation loans can simplify payments and potentially lower interest rates.
Jump to insightBalance transfer credit cards offer a way to consolidate debt with promotional rates.
Jump to insightIf you have decent credit, peer-to-peer lenders often have lower interest rates than many credit cards.
Jump to insight1. Debt consolidation loans
Debt consolidation loans are personal loans that allow you to pay off multiple debt accounts at once — potentially lowering your interest rate and your monthly payment. Debt consolidation loans are unsecured, meaning you don’t have to use collateral to qualify for the loan like an automobile or your home. These loans usually offer interest rates that range from around 7% APR to 35% APR, depending on your credit score. Repayment terms typically range from 12 months to seven years.
Pros
- Unsecured loan
- Can apply online
- Funding usually available quickly
Cons
- Higher interest rates if your credit score is low
- Some lenders don’t offer large loan amounts
- Repayment terms may be limited
How to qualify: You’ll usually need a fair to good credit score and a solid income. Some debt consolidation loans allow co-signers or co-applicants to help you qualify for the loan. Using a co-signer lets you utilize the credit history and score of a trusted person — and may help you get better rates on your loan as well.
Plenty of online lenders offer great rates and flexible loan terms for debt consolidation loans. You can apply online, and many lenders let you preview the terms and rates without hurting your credit score. Loans are typically issued within a few days directly to your bank account.
2. Balance transfer credit cards
Balance transfer credit cards allow you to consolidate multiple credit card balances onto a single credit card. These credit cards often come with a promotional APR when you sign up — usually offering 0% APR for a specified length of time (typically 12 to 18 months in length). It’s important to note that when you transfer a balance, you’ll usually pay a balance transfer fee of 3% to 5% of the total balance you’re transferring.
Balance transfer cards usually come with no annual fee and 0% rates for at least a year — but some also offer credit card rewards as well. Cards like Chase Freedom Unlimited offer cash back on purchases and bonus points for spending in certain categories like dining and travel. Balance transfer cards vary in their rates, fees and promotions, so it’s important to compare several balance transfer credit cards to find one that works best for your situation.
Pros
- Can quickly lower your credit card interest rates
- Consolidate multiple credit cards into one single payment
- May save hundreds or even thousands in interest
Cons
- Zero percent rate only lasts a year or so
- Comes with a balance transfer fee
- Can lose your promotional 0% APR if you miss a payment
How to qualify: You usually need a good credit score and credit history. Most balance transfer card issuers don’t allow co-signers, so you’ll need to qualify on your own. You can apply for a balance transfer credit card online within minutes and usually receive an instant decision. But in some cases, you’ll need to wait to hear back from the card issuer in writing within a few weeks.
Always read the fine print
Read through the terms and conditions of your balance transfer card. You can lose your promotional rate if you miss a payment or don’t pay off the full balance in time. This can cost you hundreds of dollars in interest if you don’t follow the card rules.
3. Home equity line of credit (HELOC)
A home equity line of credit (HELOC) lets you open a revolving line of credit against the equity you have in your home. You can usually borrow up to a certain percentage of your home equity (such as 85%) and have a low variable interest rate on the amount you borrow.
Pros
- Lower rates than most loan options
- Pay off multiple debts at once
Cons
- Variable rate can change any time
- Diminishes your overall home equity
How to qualify: You can apply for a HELOC at your local bank or credit union. Approval will depend on how much home equity you have, your credit score and your income level. Once approved, you can draw as much — or as little — as you want from the credit line and your payment will rise or fall depending on how much you use.
4. Debt management plans
A debt management plan is usually set up through a third party that promises to repay your outstanding debts for a single monthly payment. Debt relief companies or nonprofit credit counseling agencies can set up payment plans that work with our monthly budget while taking control of your credit accounts to pay off your debts over time. This isn’t a loan — rather a payment plan to a third party in return for their debt relief services.
Pros
- Not a loan
- No credit check required
- May negotiate debt payoff to lower amounts
Cons
- May need to close credit lines and credit cards
- May end up paying high fees for the services
- Not all creditors will participate in debt management plans
How to qualify: You can contact a debt relief company for details on how to set up a debt management plan or reach out to a nonprofit credit counseling agency for plan information. Some debt management plans will help you negotiate your debts lower as well, offering debt relief and lower repayment amounts. But it’s important to keep an eye on your loans and credit balances to ensure the debt relief company is making timely payments to help get rid of your debt.
5. Peer-to-peer (P2P) loans
Peer-to-peer (P2P) loans are a type of loan that allows independent investors to lend money through a lending platform, and borrowers can use these loans for different purposes. Some P2P loan platforms let borrowers with lower credit scores apply, making it a good choice for those with an imperfect credit history.
Pros
- May qualify even with low credit score
- Direct lending from investors
- Online loans for fast approval and funding
Cons
- May come with loan fees
- Interest rates may be higher than personal loans
- Can impact your credit score if you miss payments or default
How to qualify: You can apply for a P2P loan through online lenders like Prosper or Funding Circle. Since these are unsecured loans, your credit score, income and credit history are important and can impact your interest rate and loan terms.
FAQ
How much does debt consolidation cost?
Expect to pay 15% to 25% of the amount of debt you enroll. Debt consolidation has various costs, depending on which method you choose. If you use a debt consolidation loan, there may be loan fees and interest charges. If you use a balance transfer credit card, you’ll most likely pay a balance transfer fee and possibly interest. For other options, there are various loan fees, service fees and interest charges that may apply.
What is the best way to consolidate debt?
If you’re looking to consolidate multiple debts, the easiest way is to get a debt consolidation loan. These loans are unsecured, can be applied for online and offer good interest rates to qualified borrowers. Plus, there are lenders that don’t charge loan fees and have flexible repayment terms.
Are there risks associated with debt consolidation?
Debt consolidation has multiple associated risks. Essentially, you’re borrowing money to pay off multiple debts, but you’re still responsible for the debt balance. If you don’t change the behaviors that got you into debt in the first place, you’ll likely stay in debt longer, even after consolidating. Plus, if you default on the new loan or credit line, it can hurt your credit score.
Why choose debt consolidation over debt settlement?
Debt consolidation is paying off multiple debts with a single loan or credit line. This simplifies the repayment process and can save money on interest over the life of your debt. Debt settlement negotiates lower payoff amounts for debt, but it usually must be paid upfront. Plus, the forgiven debt amount is taxable, which can end up costing you money you don’t currently have.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Consumer Financial Protection Bureau, “What is a debt relief program and how do I know if I should use one?” Accessed Jan. 16, 2025.
- Consumer Financial Protection Bureau, “What is the difference between credit counseling and debt settlement, debt consolidation, or credit repair?” Accessed Jan. 16, 2025.
- Consumer Financial Protection Bureau, “What do I need to know about consolidating my credit card debt?” Accessed Jan. 16, 2025.
