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Debt Consolidation vs. Personal Loan: What Is the Difference?

Debt consolidation loans offer several benefits, which include streamlining your repayment and potentially reducing your interest rate.

Kat Tretina Kat Tretina Edited by Ashley Harrison Updated June 28, 2022

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. By refinancing your mortgage, total finance charges may be higher over the life of the loan.
Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

If you have high-interest debt, consolidating that debt might help you save money and even pay off your balances faster. One way to do this is through a debt consolidation loan — a type of personal loan that lets you combine your debts into one new loan with a single payment.

There are also other options available for debt consolidation.

Here’s what you should know about personal loans vs. debt consolidation loans:

  • Is a debt consolidation loan the same as a personal loan?
  • 17 personal loans to consider for debt consolidation
  • How to qualify for a debt consolidation loan
  • What are the benefits of a debt consolidation loan?
  • Can a debt consolidation loan hurt your credit score?
  • Debt consolidation loan alternatives

Is a debt consolidation loan the same as a personal loan?

Yes — a debt consolidation loan is simply a type of personal loan. Here’s how these loans work:

Personal loan

A personal loan is a kind of installment loan that can be used for almost any personal expense, such as home renovations, a dream vacation, or debt consolidation.

These loans are available from online lenders, banks, and credit unions and generally range from a few hundred dollars up to $100,000 or more, depending on the lender.

Keep in mind: Most personal loans are unsecured, meaning you don’t have to worry about collateral. Instead, the lender will review your credit, income, debt-to-income ratio, and other factors to determine your creditworthiness.

Learn More:

  • How Do Personal Loans Work?
  • Home Equity Loan vs. Personal Loan

Debt consolidation loan

A debt consolidation loan is a type of personal loan that lets combine existing debts into one loan. Depending on your credit, you might also qualify for a lower interest rate than you’ve been paying, which could help you save money over the life of your loan.

In some cases, you’ll need to specify a loan purpose when you apply for a personal loan. While many lenders will let you use a personal loan for debt consolidation, others might have restrictions on how you can use your loan.

Tip: Some lenders offer lower interest rates on debt consolidation loans compared to personal loans for other purchases.

It’s a good idea to shop around and compare as many lenders as possible to see what rates you might qualify for.

Check Out: Credit Card Consolidation Loans

17 personal loans to consider for debt consolidation

Here are Credible’s partner lenders that offer personal loans for debt consolidation:

LenderFixed ratesLoan amountsMin. credit scoreLoan terms (years)


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
9.95% - 35.99% APR $2,000 to $35,000**5502, 3, 4, 5*
  • Fixed APR: 9.95% - 35.99% APR
  • Variable APR: N/A
  • Min. credit score: 550
  • Loan amount: $2,000 to $35,000**
  • Loan terms (years): 2, 3, 4, 5*
  • Time to fund: As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
  • Fees: Origination fee
  • Discounts: Autopay
  • Eligibility: Available in all states except CO, IA, HI, VT, NV NY, WV
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Loan servicer: Avant
  • Loan Uses: Debt consolidation, emergency expense, life event, home improvement, and other purposes
  • Min. Income: $1,200 monthly


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
7.79% - 14.99% APR $10,000 to $50,0007003, 4, 5, 6
  • Fixed APR: 7.79% - 14.99% APR
  • Variable APR: N/A
  • Min. credit score: 700
  • Loan amount: $10,000 to $50,000
  • Loan terms (years): 3 to 6
  • Time to fund: Next business day
  • Fees: No prepayment penalty
  • Discounts: None
  • Eligibility: Available in all 50 states
  • Customer service: Phone
  • Soft credit check: Yes
  • Min. Income: Does not disclose
  • Loan Uses: Debt consolidation, home improvement, self-employment, and other purposes


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
7.99% - 35.99% APR $2,000 to $50,0006003, 5
  • Fixed APR: 7.99% - 35.99% APR
  • Variable APR: N/A
  • Min. credit score: 600
  • Loan amount: $2,000 to $50,000
  • Loan terms (years): 2, 3, 4, 5
  • Time to fund: As soon as 1 to 3 business days after successful verification
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all states except DC, IA, VT, and WV
  • Customer service: Phone
  • Soft credit check: Yes
  • Loan servicer: Best Egg and Blue Ridge Bank
  • Min. Income: None
  • Loan Uses: Credit card refinancing, debt consolidation, home improvement, and other purposes


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
5.99% - 24.99% APR $2,500 to $35,0006603, 4, 5, 6, 7
  • Fixed APR: 5.99% - 24.99% APR
  • Min. credit score: 660
  • Loan amount: $2,500 to $35,000
  • Loan terms (years): 3, 4, 5, 6, 7
  • Time to fund: As soon as the next business day after acceptance
  • Fees: Late fee
  • Discounts: None
  • Eligibility:  Available in all 50 states
  • Customer service: Phone
  • Soft credit check: Yes
  • Loan Uses: Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
7.99% - 29.99% APR $10,000 to $35,000Not disclosed by lender2, 3, 4, 5
  • Fixed APR: 7.99% - 29.99% APR
  • Min. credit score: Does not disclose
  • Loan amount: $10,000 to $50,000
  • Loan terms (years): 2, 3, 4, 5
  • Time to fund: As soon as 2 business days
  • Fees: Origination fee
  • Discounts: No
  • Eligibility: Available in all states except CO, CT, HI, KS, NH, NY, ND, OR, VT, WV, WI, and WY
  • Customer service: Phone
  • Soft credit check: Yes
  • Min. Income: None
  • Loan Uses: Debt consolidation, home improvement, wedding, travel, medical expenses, and other purposes


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
5.99% - 24.99% APR $5,000 to $40,0006002, 3, 4, 5
  • Fixed APR: 5.99% - 24.99% APR
  • Min. credit score: 600
  • Loan amount: $5,000 to $40,000
  • Loan terms (years): 2, 3, 4, 5
  • Time to fund: As soon as 2 to 5 business days after verification
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all states except MA and NV
  • Customer service: Phone, email, chat
  • Soft credit check: Yes
  • Min. Income: None
  • Loan Uses: Debt consolidation and credit card consolidation only


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
7.04% - 35.89% APR $1,000 to $40,0006003, 5
  • Fixed APR: 7.04% - 35.89% APR
  • Min. credit score: 600
  • Loan amount: $1,000 to $40,000
  • Loan terms (years): 3, 5
  • Time to fund: Usually takes about 2 days†
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all 50 states
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Loan servicer: LendingClub Bank
  • Min. Income: None
  • Loan Uses: Debt consolidation, paying off credit cards, home improvement, pool loans, vacations, and other purposes


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
7.99% - 35.99% APR $2,000 to $36,5005802, 3, 4, 5, 6
  • Fixed APR: 7.99% - 35.99% APR
  • Min. credit score: 580
  • Loan amount: $2,000 to $36,500
  • Loan terms (years): 2, 3, 4, 5, 6
  • Time to fund: As soon as the next business day
  • Fees: Origination fee
  • Discounts: Autopay
  • Eligibility: Available in all states except NV and WV
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. Income: $20,000
  • Loan Uses: Home improvement, consolidate debt, credit card refinancing, relocate, make a large purchase, and other purposes


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
3.99% - 19.99% APR $5,000 to $100,0006602, 3, 4, 5, 6, 7
(up to 12 years for home improvement loans)
  • Fixed APR: 3.99% - 19.99% APR
  • Min. credit score: 660
  • Loan amount: $5,000 to $100,000
  • Loan terms (years): 2, 3, 4, 5, 6, 7*
  • Time to fund: As soon as the same business day
  • Fees: None
  • Discounts: Autopay
  • Eligibility: Available in all states except RI and VT
  • Customer service: Phone, email
  • Soft credit check: No
  • Loan servicer: LightStream
  • Min. Income: Does not disclose
  • Loan Uses: Credit card refinancing, debt consolidation, home improvement, and other purposes


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
6.99% - 24.99% APR1 $3,500 to $40,0002660
(TransUnion FICO®️ Score 9)
3, 4, 5, 6, 7
  • Fixed APR: 6.99% - 24.99% APR1
  • Min. credit score: 660
    (TransUnion FICO®️ Score 9)
  • Loan amount: $3,500 to $40,0002
  • Loan terms (years): 3, 4, 5, 6
  • Time to fund: Many Marcus customers receive funds in as little as three days
  • Fees: None
  • Discounts: Autopay
  • Eligibility: Available in all 50 states
  • Customer service: Phone
  • Soft credit check: Yes
  • Loan servicer: Goldman Sachs
  • Min. Income: $30,000
  • Loan Uses: Credit card refinancing, debt consolidation, home improvement, major purchase, and other purposes


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
18.0% - 35.99% APR $1,500 to $20,000None2, 3, 4, 5
  • Fixed APR: 18.0% - 35.99% APR
  • Min. credit score: None
  • Loan amount: $1,500 to $20,000
  • Loan terms (years): 2, 3, 4, 5
  • Time to fund: As soon as the same day, but usually requires a visit to a branch office
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Must have photo I.D. issued by U.S. federal, state or local government
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. Income: Does not disclose


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
6.74% - 17.99% APR $600 to $50,000
(depending on loan term)
6601, 2, 3, 4, 5
  • Fixed APR: 6.74% - 17.99% APR
  • Min. credit score: 660
  • Loan amount: $600 to $50,000*
  • Loan terms (years): 1, 2, 3, 4, 5
  • Time to fund: 2 to 4 business days after verification
  • Fees: None
  • Discounts: None
  • Eligibility: Does not disclose
  • Customer service: Phone, email
  • Soft credit check: No
  • Min. Income: Does not disclose
  • Loan Uses: Debt consolidation, home improvement, transportation, medical, dental, life events


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
7.95% - 35.99% APR $2,000 to $40,0006403, 5
  • Fixed APR: 7.95% - 35.99% APR
  • Min. credit score: 640
  • Loan amount: $2,000 to $40,000
  • Loan terms (years): 3, 5
  • Time to fund: As soon as one business day
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all states except IA, ND, WV
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. Income: None
  • Loan Uses: Debt consolidation, home improvement, vehicles, small business, new baby expenses, and other purposes


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
7.99% - 22.73% APR10 $5,000 to $100,000Does not disclose2, 3, 4, 5, 6, 7
  • Fixed APR: 7.99% - 22.73% APR10
  • Min. credit score: Does not disclose
  • Loan amount: $5,000 to $100,000
  • Loan terms (years): 2, 3, 4, 5, 6, 7
  • Time to fund: 3 business days
  • Fees: None
  • Discounts: Autopay
  • Eligibility: Available in all states except MS
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. Income: Does not disclose
  • Loan Uses: Solely for personal, family, or household uses


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
11.69% - 35.93% APR7 $1,000 to $20,0005603, 5
  • Fixed APR: 11.69% - 35.93% APR7
  • Min. credit score: 560
  • Loan amount: $1,000 to $50,000
  • Loan terms: 3 to 5 years 8
  • Time to fund: Within one day, once approved9
  • Loan types: Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
  • Fees: Origination fee
  • Discounts: Autopay
  • Eligibility: A U.S. citizen or permanent resident; not available in DC, SC, WV
  • Customer service: Phone, email
  • Soft credit check: Yes


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
6.95% - 35.97% APR $1,000 to $50,0005602, 3, 5, 6
  • Fixed APR: 6.95% - 35.97% APR
  • Min. credit score: 560
  • Loan amount: $1,000 to $50,000*
  • Loan terms (years): 2, 3, 5, 6
  • Time to fund: Within a day of clearing necessary verifications
  • Fees: Origination fee
  • Discounts: Autopay
  • Eligibility: Available in all states except West Virginia
  • Customer service: Email
  • Soft credit check: Yes
  • Min. Income: Does not disclose
  • Loan Uses: Debt consolidation, credit card refinancing, home improvement, and other purposes


Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
View details
5.4% - 35.99% APR4 $1,000 to $50,00055803 to 5 years4
  • Fixed APR: 5.4% - 35.99% APR4
  • Min. credit score: 580
  • Loan amount: $1,000 to $50,0005
  • Loan terms (years): 3 to 5 years4
  • Time to fund: As fast as 1 business day6
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all 50 states
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. Income: $12,000
  • Loan Uses: Payoff credit cards, consolidate debt, take a course or bootcamp, relocate, make a large purchase, and other purposes
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All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | 10SoFi Disclosures | Read more about Rates and Terms

Avant: Best for borrowers with poor credit

Avant offers personal loans from 2,000 to $35,000* with terms from two to five years••. If your credit is less than perfect, you might still qualify with Avant.

Axos Bank: Best for fast loan funding

If you’d like to quickly consolidate your debt, Axos Bank could be a good choice. You can borrow $10,000 to $50,000 and could have your money as soon as the next business day if you’re approved.

Best Egg: Best for borrowers with fair credit

Best Egg could be a good option if you want to borrow anywhere from $2,000 to $50,000 and have less-than-stellar credit. If you’re approved, you could have your funds within one to three days after successful verification.

Discover: Best for longer loan terms

With Discover, you could have up to seven years to repay your loan. This could get you a lower monthly payment, easing the strain on your budget. However, keep in mind that a longer interest term also means paying more in interest over time.

FreedomPlus: Best for consolidating high-interest debt

You might qualify for a lower interest rate on a FreedomPlus loan if you use at least 85% of the loan proceeds to pay off existing debt.

Adding a cosigner or showing proof of retirement savings could also get you a lower rate with FreedomPlus.

Happy Money: Best for consolidating credit card debt

Happy Money personal loans can only be used to consolidate credit card debt. You can borrow $5,000 to $40,000 with a term ranging from two to five years.

LendingClub: Best for borrowers who need a cosigner

LendingClub is one of the few lenders that allow cosigners on personal loans. If you have poor credit, applying with a cosigner could help you get approved.

LendingPoint: Best for borrowers with bad credit

LendingPoint specializes in working with borrowers who have near-prime credit — generally meaning a credit score in the upper 500s or 600s.

With LendingPoint, you can borrow $2,000 to $36,500 with a term ranging from two to six years.

Learn More: 3 Steps to Get a Debt Consolidation Loan for Bad Credit

LightStream: Best for large loan amounts

If you need to borrow a large amount, LightStream could be a good choice. You can borrow $5,000 to $100,000 with funding as soon as the same business day if you’re approved.

Marcus: Best for flexible repayment options

Marcus personal loans are available for $$3,500 to $40,0002 with terms from three to six years. Keep in mind that if you make on-time payments for 12 months, you can defer one payment interest-free.

OneMain Financial: Best for below-average credit

Unlike many other lenders, OneMain Financial doesn’t require a minimum credit score, which means you might qualify even if you have less-than-prime credit.

OneMain Financial also uses an in-person “ability to pay” evaluation to help determine your loan options.

PenFed: Best for small loan amounts

If you only need a small loan amount, PenFed could be a good option. You can borrow as little as $600 up to $50,000 with a term from one to five years.

Prosper: Best for borrowers with good credit

Prosper operates an online, peer-to-peer loan marketplace where you can borrow $2,000 to $40,000.

Note that when you apply for a Prosper loan, investors will need to commit to funding it, which means the loan process might take longer compared to other lenders.

SoFi: Best for borrowers with excellent credit

With SoFi, you can borrow $5,000 to $100,000 with a term from two to seven years. Although SoFi doesn’t disclose its credit requirements, most SoFi borrowers have very good to excellent credit.

As a SoFi borrower, you’ll also enjoy perks like unemployment protection and free financial advising.

Upgrade: Best for fast loan decisions

Upgrade personal loans are available for $1,000 to $50,0000 with terms of three or five years. If you’re approved, you could have your loan funded within a day of clearing necessary verifications.

Upstart: Best for borrowers with thin credit

Upstart will consider your education and job history to determine potential not reflected in your credit score. This means you might qualify even if you have thin credit — meaning you don’t have enough of a credit history to have a credit score.

Learn More: Pay Off Credit Card Debt ASAP With a Personal Loan

How to qualify for a debt consolidation loan

If you’re ready to get a debt consolidation loan, follow these three steps:

  1. Check your credit. Before shopping for a loan, it’s a good idea to make sure your credit is as strong as possible. You can check your credit reports from each of the credit bureaus for free through AnnualCreditReport.com. If there are any errors, dispute them with the appropriate credit bureaus to potentially boost your score.
  2. Compare lenders and pick a loan option. Be sure to compare as many lenders as possible to find the right loan for you. Consider not only rates but also repayment terms, any fees charged by the lender, and eligibility requirements. After comparing lenders, choose the loan that best suits your needs.
  3. Complete the application and get your funds. You’ll need to fill out a full application and submit any required documentation, such as tax returns or pay stubs. If you’re approved, the lender will have you sign for the loan so you can get your money — typically within one week or less, depending on the lender.
Tip: You’ll typically need good to excellent credit to qualify for a personal loan for debt consolidation, though there are some lenders that offer personal loans for bad credit. However, these loans generally come with higher interest rates compared to good credit loans.

If you’re struggling to qualify, you could also consider applying with a cosigner. Not all lenders allow cosigners on personal loans, but some do. Even if you don’t need a cosigner to qualify, having one might get you a lower rate than you’d get on your own.

It’s also important to consider how much a debt consolidation loan will cost you over time. This way, you can prepare for the new monthly payment and adjust your budget accordingly. You can estimate how much you’ll pay for a loan using our personal loan calculator below.

Enter your loan information to calculate how much you could pay

? Enter the total amount borrowed $
? Enter your annual interest rate %
or
? Enter the amount of time you have to repay your loan years
Total Payment $
Total Interest $
Monthly Payment $

With a $ loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the loan.


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Check Out:

  • 13 Best Debt Consolidation Loans for Fair Credit
  • When to Use a Personal Line of Credit

What are the benefits of a debt consolidation loan?

Debt consolidation loans offer several benefits. For example, a debt consolidation loan could:

  • Streamline your payments: Instead of juggling multiple debt payments, consolidating your debt combines your balances and leaves you with just one payment going forward. This can help you more easily manage your debt.
  • Potentially reduce your interest rate: Depending on your credit, you might qualify for a lower interest rate compared to what you’ve been paying. This could help you save money on interest charges over time and maybe pay off your debt faster.
  • Give you a set payoff date: Debt consolidation loans have fixed repayment terms, so you’ll know exactly when you’ll be out of debt.

Learn More: Average Personal Loan Interest Rates

Can a debt consolidation loan hurt your credit score?

A debt consolidation loan could either help your credit score or hurt it — though keep in mind that the positive effects will likely outweigh any negative impact over time.

Here’s how a debt consolidation loan might negatively impact your credit:

  • Hard credit inquiry: The lender will perform a hard credit inquiry to determine your creditworthiness, which might cause your score to drop by a few points. However, this effect is usually only temporary, and your score will likely bounce back within a few months.
  • Missed payments: If you miss any of your loan payments, your credit could be damaged.

And here’s how a debt consolidation loan could you build your credit:

  • Build positive payment history: Payment history makes up the biggest part of your FICO score — 35%. If you make all of your payments on time, you might see your credit score go up.
  • Reduce credit utilization: Your credit utilization is the total amount of debt you owe divided by the amount of credit you have available, and it makes up 30% of your FICO score. If you reduce your debt with a debt consolidation loan, you could improve this ratio and potentially raise your credit score.

Check Out:

  • Debt Relief Programs: Options to Reduce Debt
  • Debt Consolidation Loan vs. Credit Card Refinancing: How To Choose

Debt consolidation loan alternatives

If a debt consolidation loan doesn’t seem right for you, here are some other options to consider:

  • Credit card: Balance transfer cards allow you to move your balances to one card to help you pay off credit card debt. Some cards also offer a 0% APR introductory period, which means you could avoid paying any interest if you repay your balance by the time this period ends. However, keep in mind that if you can’t pay off your card in time, you could be stuck with hefty interest charges.
  • Home equity line of credit (HELOC): If you’re a homeowner and have equity in your home, a HELOC could be another way to consolidate your debt. Because a HELOC is secured by your home, you might get a lower rate compared to a personal loan — but this also means you risk losing your house if you can’t make your payments.
  • Debt management: If you’re overwhelmed by your debt, a nonprofit credit counseling agency — such as the National Foundation for Credit Counseling — could help you develop a debt management plan. The agency will work with your creditors to distribute your payments so you can become debt free within five years.

If you decide to take out a debt consolidation loan, remember to consider as many lenders as possible to find a loan that works for you. Credible makes this easy — you can compare your prequalified rates from multiple lenders in two minutes.

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About the author
Kat Tretina
Kat Tretina

Kat Tretina is a freelance writer who covers everything from student loans to personal loans to mortgages. Her work has appeared in publications like the Huffington Post, Money Magazine, MarketWatch, Business Insider, and more.

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