How To Get a Personal Loan for Debt Consolidation
• List each debt with its annual percentage rate (APR) first: 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.
• Prequalifying uses a soft credit pull that won't affect your score: Compare rates and terms from banks, credit unions and online lenders before you formally apply.
• A longer term lowers the monthly payment but can raise total interest: Compare total costs and not just monthly payment amounts.
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 can still cost you more in total. 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.
If balances build back up on your cards after you consolidate, stop charging them and put extra cash toward the highest-rate card, so the new loan doesn't turn into a second layer of debt. If you miss a loan payment, pay it as soon as you can and call your lender about a hardship plan, since a payment you catch up before the lender reports it late can stay off your credit report.
MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.
How Do You Get a Personal Loan for Debt Consolidation?
Before you compare loans, check your credit and total up what you owe, since those two things decide which lenders will approve you and how much you need to borrow. After that, compare prequalified rates, apply for the best offer and use the money to pay off each balance.
1. Check Your Credit Reports and Credit Score
Before you start looking for a loan, know your credit score. Each lender has its own personal loan requirements for borrowers, but most lenders will check your credit.
You should know in advance whether your credit report has any negative information. Federal law entitles you to a copy of your credit report at no cost from each of the three main credit bureaus — Equifax, Experian and TransUnion — every 12 months, and the bureaus now let you check each report weekly at no cost through AnnualCreditReport.com. If you find an error, dispute it with the bureau before you apply, since a corrected report can qualify you for a better rate.
You can also check your credit score at no cost through your credit card company or your bank.
2. List Your Loan and Credit Card Balances
Listing each loan and credit card balance with its APR and monthly payment shows you how much to borrow and the rate a new loan has to beat.
3. Look for Lenders That Make Personal Loans in the Amount You Need
Banks, credit unions and online lenders all offer personal loans with different types of terms. Comparing the best debt consolidation loans side by side shows which lenders cover your amount at a rate below what you pay now.
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
Entering the debts you want to consolidate into an online debt consolidation calculator shows your new monthly payment and total interest next to what you pay now. That comparison confirms whether a loan actually saves you money before you apply.
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. That payoff is how debt consolidation loans work, and some lenders send the money straight to your creditors while others deposit it in your account for you to pay them.
7. Don't Rack Up Additional Debt
Paying off your cards with the loan frees up their full credit limits, and running new balances onto them leaves you paying both the loan and the cards. Only charge what you can pay off each month, which keeps your utilization low and your total debt shrinking.
8. Keep Your Old Accounts Open
Keeping your paid-off cards open holds your total available credit steady, which keeps your credit utilization low. A card you close in good standing stays on your credit report for 10 years, so closing it cuts your available credit right away without shortening your credit history.
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 because the loan changes how your debt shows up on your credit report.
Lower credit utilization: Paying off credit cards with the loan drops your revolving utilization, which falls under amounts owed, a category that makes up 30% of a FICO 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?
Each lender sets its own minimum, and FICO rates a score of 670 to 739 as good. A score in that range 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.
FICO's score ranges also line up with the rates and lender choices you can expect.
Scores of 740 and above: You'll see the lowest advertised rates and the widest choice of lenders.
Scores of 670 to 739: You'll qualify with most lenders at competitive, though not rock-bottom, rates.
Scores 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.
Alternatives to a Personal Loan for Debt Consolidation
Which consolidation option fits best depends on your credit, how much you owe and what you're willing to put up as security.
Balance transfer credit card: A card with a 0% introductory APR on balance transfers lets you move balances over and pay no interest for a period of time. After that, the card's regular variable APR applies.
Home equity loan or home equity line of credit (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.
Loan from your 401(k): You can borrow from your retirement savings, usually at a low rate, but you lose investment growth on the borrowed amount. If you leave your job, your plan may require you to repay the full balance, and any amount you don’t repay or roll over by your tax filing deadline is taxed as a distribution, according to the IRS.
How To Tell if Debt Consolidation Will Save You Money
Debt consolidation saves you money when the new loan's total cost, including interest and any origination fee, comes in below what you'd pay by keeping your current balances. Compare the total cost of each prequalified offer rather than the monthly payment, whether you're consolidating credit card debt or a mix of loans and cards.
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. Weighing the pros and cons of debt consolidation against your current rates shows whether the new loan actually saves you money.
Key Terms
Debt consolidation: Combining several debts into one new loan or account so you make a single monthly payment, ideally at a lower rate.
Annual percentage rate: The yearly cost of borrowing, including interest and certain fees such as an origination fee.
Prequalification: A preview of the rate and terms a lender may offer, based on a soft credit check.
Credit score: A three-digit number, usually 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.
Credit report: A detailed record of your borrowing history, available at no cost from each bureau weekly through AnnualCreditReport.com.
Credit utilization: The share of your available revolving credit you're using, one of the largest factors in your score. Staying under 30% is recommended and under 10% is best for scores.
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.
Installment loan: A loan you repay in fixed monthly payments over a set term, such as a personal loan.
Balance transfer: Moving a balance from one credit card to another, usually to get a 0% or lower introductory APR.
Home equity line of credit: A revolving line of credit secured by the equity in your home.
Sources
Federal Trade Commission: You now have permanent access to free weekly credit reports
Consumer Financial Protection Bureau: What is a credit score?
Consumer Financial Protection Bureau: How do I dispute an error on my credit report?
AnnualCreditReport.com: Request your free credit reports
Parts of this article were created with AI assistance. MoneyLion editors reviewed, fact-checked and edited the final version and are responsible for its accuracy.
FAQs
Lenders set their own rules on which debts a consolidation loan can cover. Wells Fargo, for example, doesn't allow college student loan debt to be paid off with its debt consolidation loan, according to its website.
Check the loan agreement's allowed uses before you accept an offer, so the loan covers every balance you plan to pay off.
Funding time depends on the lender and how fast you finish verification. Prosper says funds can arrive as soon as one business day, and Wells Fargo says most of its customers receive funds the day they sign their loan agreement, according to each lender's website.
Once the money arrives, pay off each balance right away so no new interest builds on the old accounts.
Some lenders charge an origination fee, which comes out of your loan before you receive it, so you may need to borrow more to cover the full balance you're paying off. Prosper lists an origination fee among its loan fees, according to its website.
Comparing APRs rather than interest rates captures that fee, since APR includes it.
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