How To Get a Personal Loan for Debt Consolidation

To get a personal loan for debt consolidation, check your credit score, add up your existing debts and their interest rates, then prequalify with several lenders to find a rate low enough to actually save you money. Consolidating rolls multiple balances into one fixed monthly payment, and if the new loan's rate is lower than what you're paying now, it can cut your total interest and simplify your payoff.

A lower monthly payment doesn't always mean lower total cost. Stretching the balance over a longer term can leave you paying more interest overall, and the rate you qualify for depends heavily on your credit. Borrowers with strong scores get the best terms, while those with weaker credit need to shop around harder to find an offer worth taking.

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Pull your free credit reports at AnnualCreditReport.com before you start, so you can catch and dispute any errors that might push your rate higher than it should be.

Key Takeaways

• To get a personal loan for debt consolidation, start by checking your credit score and listing your current debts with their APRs and monthly payments. This tells you how much to borrow and whether consolidating will lower your overall interest costs.

• Prequalify with multiple lenders — including banks, credit unions and online lenders — to compare rates and terms using soft credit pulls, which won't affect your credit score.

• A longer loan term can lower your monthly payment but may increase the total interest you pay over the life of the loan, so compare total costs and not just monthly payment amounts.

• After consolidating, avoid carrying new balances on freed-up credit cards and keep old accounts open — account age is a factor in your credit score, and closing accounts can work against it.

• Before you apply, pull your free credit reports at AnnualCreditReport.com to spot and dispute any errors that could affect your rate.

Summary generated by AI, verified by MoneyLion editors

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How Do You Get a Personal Loan for Debt Consolidation?

Getting a personal loan for debt consolidation takes eight steps — check your credit, total up your debts, compare prequalified rates from multiple lenders, and use the funds to pay off your existing balances. The full process is below.

1. Check Your Credit Reports and Credit Score

Before you start looking for a loan, know your credit score. Each lender has its own credit requirements for borrowers, but all lenders will check your credit.

You should know in advance whether your credit report has any negative information. Federal law entitles you to a free copy of your credit report from each of the three main credit bureaus — Equifax, Experian and TransUnion — every 12 months, which you can order online from AnnualCreditReport.com. You can also get your credit score for free from your credit card company, bank or a free online service such as Credit Sesame or Credit Karma.

2. List Your Loan and Credit Card Balances

Include the annual percentage rates and monthly payments for each debt you owe to understand how much money you need to borrow.

3. Look for Lenders That Make Personal Loans in the Amount You Need

Banks, credit unions and online lenders all over personal loans with different types of terms. For example, Wells Fargo offers personal loans for debt consolidation in amounts from $3,000 to $100,000. For borrowers with good credit, the peer-to-peer lending platform Prosper offers personal loans from $2,000 to $50,000.

4. Shop Around for Lenders With the Most Favorable Interest Rates

Many lenders will share the rate you qualify for before you apply. To get your rate, you'll have to prequalify, provide personal information and wait for the lender to do a soft pull on your credit.

Make sure that when you're shopping for rates you're only authorizing soft pulls. Too many hard pulls can hurt your credit and potentially jeopardize the terms

5. Use a Debt Consolidation Calculator

Enter the debts you want to consolidate into an online debt consolidation calculator to see how a personal loan can benefit you. Although having a single monthly payment will save you time, it's also important to find a loan with the best rates and terms.

6. Apply for the Best Loan for Your Situation

Once you've shopped around and decided on a loan, apply for it and use the funds to pay off your existing debts.

7. Don't Rack Up Additional Debt

After you've paid off your debts, it might be tempting to use some of your newly available credit to make purchases.

Instead, only charge what you know you can pay for, and don't carry a balance from month to month.

8. Keep Your Old Accounts Open

If possible, try to keep your old account open. Part of your credit score depends on the length of your credit history, so the longer you've had an account, the better it can be for your credit score.

However, if the temptation is too much, it's better to shorten your credit history then have debt.

Does Consolidating Debt With a Personal Loan Hurt Your Credit?

Consolidating debt with a personal loan can cause a small, temporary dip in your credit score, but it often helps your credit over time. The application triggers a hard inquiry and the new account lowers the average age of your credit, both of which nudge your score down briefly.

The longer-term effect tends to be positive for a few reasons.

• Lower credit utilization. Paying off credit cards with the loan drops your revolving utilization, which is one of the biggest factors in your score.

• A different mix of credit. Adding an installment loan alongside your credit cards can modestly help the "credit mix" part of your score.

• On-time payments. A consistent record of paying the loan builds positive history month after month.

The dip only sticks around if you run the balances back up or miss payments, so the outcome depends more on what you do after consolidating than on the loan itself.

What Credit Score Do You Need to Consolidate Debt?

There's no universal minimum, but a score in the good range — roughly 670 or higher — gives you access to the rates that make consolidation worthwhile. Below that, you can still qualify with many online lenders and credit unions, though the rate may be close enough to your current debt that consolidating saves little.

• 720 and above. You'll see the lowest advertised rates and the widest choice of lenders.

• 670 to 719. You'll qualify with most lenders at competitive, though not rock-bottom, rates.

• Below 670. Options narrow to lenders that serve fair or bad credit, and you'll want to prequalify carefully to confirm the loan actually lowers your interest costs.

Because prequalification uses a soft pull, you can check your likely rate across several lenders without touching your score, which is the safest way to find out where you stand.

Alternatives to a Personal Loan for Debt Consolidation

A personal loan isn't the only way to consolidate, and another option may fit better depending on your credit and how much you owe.

• Balance transfer credit card. A card with a 0% introductory APR lets you move balances over and pay no interest for a set window, often 12 to 21 months. It's ideal if you can clear the debt before the promotional period ends, but the rate jumps afterward and transfer fees apply.

• Home equity loan or HELOC. Borrowing against your home's equity can unlock lower rates, but your house secures the debt, so falling behind puts it at risk.

• Debt management plan. A nonprofit credit counseling agency can roll your unsecured debts into one payment, often at reduced interest, without you taking on a new loan. It typically requires closing the cards involved.

• 401(k) loan. You can borrow from your retirement savings, usually at a low rate, but you lose investment growth on the borrowed amount and owe it back quickly if you leave your job.

Each carries its own risk profile, so weigh the rate against what you're putting on the line before committing.

Make Sure Your Loan Is Saving You Money On Interest

Whether you need a personal loan for credit card debt consolidation or to pay off a mix of loans and credit cards, shop around for the best personal loan rates you qualify for.

And remember — just because you consolidate your debt doesn't mean you'll pay less in the long run. Although the loan might reduce your payment, a longer term can mean you'll pay more interest over the life of the loan.

Key Terms to Know

• Credit score. A three-digit number between 300 and 850 that lenders use to gauge how likely you are to repay borrowed money, calculated from the data in your credit reports.

• Credit bureau. One of the three companies — Experian, Equifax, and TransUnion — that collect and maintain your credit information and sell it to lenders. Also called a credit reporting agency.

• FICO Score. A credit scoring model built by the Fair Isaac Corporation. FICO 8 is the most widely used version and the default score Experian provides.

• VantageScore. A competing scoring model created jointly by the three bureaus, with VantageScore 3.0 serving as the default for Equifax and TransUnion.

• Scoring model. The specific formula used to turn your credit data into a number. Because FICO and VantageScore weigh factors differently, the same report can produce different scores.

• Credit utilization. The share of your available revolving credit you're using, one of the largest factors in your score. Staying under 30% is preferred and under 10% is ideal.

• Hard inquiry. A credit check triggered when you formally apply for credit, which can lower your score modestly and temporarily.

• Soft inquiry. A review of your credit that doesn't affect your score, such as checking your own report or getting prequalified.

• Credit report. A detailed record of your borrowing history, available free from each bureau once a year through AnnualCreditReport.com.

• Experian Boost. A free Experian service that adds rent, utility, and streaming payments to your report to potentially raise your score.

Sources

• Consumer Financial Protection Bureau: What is a credit score?

• Consumer Financial Protection Bureau: What is a FICO score?

• Consumer Financial Protection Bureau: How do I dispute an error on my credit report?

• VantageScore: Consumer FAQs

• AnnualCreditReport.com: Request your free credit reports

Summary generated by AI, verified by MoneyLion editors

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