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If you’re struggling with debt, a debt consolidation loan or balance transfer card could be a good option. However, you might be wondering if debt consolidation will hurt your credit.
Here’s what you should know about the impact of debt consolidation on your credit:
- Personal loan vs. balance transfer card: Which should you pick?
- How debt consolidation can help your credit
- How debt consolidation hurts your credit score
- Other approaches to debt consolidation
- What makes up your credit score
- How to build your credit score after taking out a debt consolidation loan
- Taking out a personal loan for debt consolidation can save you money
Personal loan vs. balance transfer card: Which should you pick?
Personal loans and balance transfer cards are two options to consolidate your debt. If you’re deciding between the two, here are some things to keep in mind:
| Personal loans | Balance transfer cards | |
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| Cons |
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Personal loans
Choosing a personal loan to consolidate debt could be a good idea if you’re looking to manage your debt with fixed monthly payments.
Personal loans tend to have lower interest rates than credit cards, which means you’ll have less interest to pay off over time compared to a balance transfer card.
Some lenders also allow cosigners on personal loans. Having a creditworthy cosigner could help you get approved or qualify you for a lower interest rate than you’d get on your own.
Debt consolidation loans could be a good idea for borrowers who:
- Want fixed monthly payments
- Have good credit and can qualify for a lower interest rate
- Need a longer time to pay off their balance
If you decide to take out a personal loan, be sure to consider as many lenders as possible to find the right loan for you. Credible makes this easy — you can compare your prequalified rates from our partner lenders in the table below in two minutes.
| Lender | Fixed rates | Loan amounts | Min. credit score | Loan terms (years) |
|---|---|---|---|---|
 View details | 9.95% - 35.99% APR | $2,000 to $35,000** | 580 | 2, 3, 4, 5* |
*If approved, the actual loan terms that a customer qualifies for may vary based on credit determination, state law, and other factors. Minimum loan amounts vary by state. **Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33. |
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 View details | 6.49% - 29.99% APR | $5,000 to $35,000 | 740 | 1, 2, 3, 4, 5 |
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 View details | 5.99% - 29.99% APR | $5,000 to $35,000 | 600 | 3, 5 |
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 View details | 6.99% - 24.99% APR | $2,500 to $35,000 | 660 | 3, 4, 5, 6, 7 |
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 View details | 7.99% - 29.99% APR | $10,000 to $35,000 | Not disclosed by lender | 2, 3, 4, 5 |
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 View details | 10.68% - 35.89% APR | $1,000 to $40,000 | 600 | 3, 5 |
LendingClub personal loans review †Based on a majority of borrowers from LendingClub's marketing partners who were issued loans between 1/1/19-12/13/19. The time it takes for your loan to be funded may vary. |
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 View details | 15.49% - 35.99% APR | $2,000 to $25,000 | 585 | 2, 3, 4 |
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 View details | 3.99% - 19.99% APR | $5,000 to $100,000 | 660 | 2, 3, 4, 5, 6, 7 (up to 12 years for home improvement loans) |
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 View details | 6.99% - 19.99% APR1 | $3,500 to $40,0002 | 660 (TransUnion FICO®️ Score 9) | 3, 4, 5, 6, 7 |
1Rate reduction of 0.25% available for AutoPay. 2You may be required to have some of your funds sent directly to pay off outstanding unsecured debt. 3After making 12 or more consecutive monthly payments, you can defer one payment as long as you have made all your prior payments in full and on time. Marcus will waive any interest incurred during the deferral and extend your loan by one month (you will pay interest during this extra month). Your payments resume as usual after your deferral. Advance notice is required. See loan agreement for details. |
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 View details | 18.00% - 35.99% APR | $1,500 to $20,000 | None | 2, 3, 4, 5 |
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 View details | 5.99% - 24.99% APR | $5,000 to $40,000 | 640 | 2, 3, 4, 5 |
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 View details | 6.49% - 17.99% APR | $600 to $20,000 (depending on loan term) | 670 | 1, 2, 3, 4, 5 |
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 View details | 6.95% - 35.99% APR | $2,000 to $40,000 | 640 | 3, 5 |
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 View details | 5.99% - 18.83% APR | $5,000 to $100,000 | Does not disclose | 2, 3, 4, 5, 6, 7 |
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 View details | 6.94% - 35.97% APR | $1,000 to $50,000 | 580 | 3, 5 |
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 View details | 8.13% - 35.99% APR4 | $1,000 to $50,0005 | 580 | 3 to 5 years4 |
4The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 15% and 36 monthly payments of $33 per $1,000 borrowed. There is no down payment and no prepayment penalty. Average APR is calculated based on 3-year rates offered in the last 1 month. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved. 5This offer is conditioned on final approval based on our consideration and verification of financial and non-financial information. Rate and loan amount are subject to change based upon information received in your full application. This offer may be accepted only by the person identified in this offer, who is old enough to legally enter into contract for the extension of credit, a US citizen or permanent resident, and a current resident of the US. Duplicate offers received are void. Closing your loan is contingent on your meeting our eligibility requirements, our verification of your information, and your agreement to the terms and conditions on the www.upstart.com website. 6If you accept your loan by 5pm EST (not including weekends or holidays), loan funds will be sent to your designated bank account on the next business day, provided that such funds are not being used to directly pay off credit cards. Loans used to fund education related expenses are subject to a 3 business day wait period between loan acceptance and funding in accordance with federal law. |
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Balance transfer cards
A balance transfer card could help you consolidate and pay off credit card debt without racking up interest charges along the way.
Some balance transfer cards also come with an introductory 0% APR period, which means you could avoid interest altogether if you’re able to pay off your balance by the time this period ends.
However, keep in mind that if you can’t repay the balance by the end of this time, you could be stuck with hefty interest charges.
Balance transfer cards could be a good option for borrowers who:
- Can take advantage of a 0% APR introductory period
- Can pay off their balance by the time this period ends
While these rewards might be nice, be careful: You could end up going further into debt if you’re focused on earning perks. It’s a good idea to concentrate on paying off your debt before worrying about any potential rewards.
Here are a few balance transfer card options to consider. Note that these are not Credible partners.
Check Out: Credit Card Consolidation Loans
How debt consolidation can help your credit
Consolidating debt could improve your credit in a few ways:
- Could lower your credit utilization: If you have debt from revolving credit (such as a credit card), you can change it to installment credit through a debt consolidation loan. Credit scoring models treat revolving and installment credit differently — generally, revolving credit has a bigger impact on your credit through your overall credit utilization, which is the percentage of your total available credit that you’re using. Reducing your credit utilization through debt consolidation could give a big boost to your credit score.
- Might help diversify your credit: Taking out a debt consolidation loan means you’ll be adding a new type of loan to your credit mix. Credit scoring models like to see that you can handle both revolving and installment credit, so by diversifying the kinds of debt you have, your credit could improve.
- Puts you on a set repayment schedule: If you decide to use a personal loan to pay off your debt, you’ll have a fixed monthly payment with a set repayment term. This could make it less tempting to continue adding to your debt compared to a balance transfer card. As you pay down your debt, you’ll likely see your credit score go up.
If you decide to take out a debt consolidation loan, you can use our personal loan calculator below to estimate your monthly payments.
Simply enter the loan amount, interest rate, and loan term to see how much you’ll pay over the life of the loan.
Enter your loan information to calculate how much you could pay
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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How debt consolidation hurts your credit score
If you take out a new loan, you might see a slight decrease in your credit score. This is because the lender will use a hard credit check to determine your creditworthiness as well as your interest rate and loan terms.
Don’t worry — typically, this impact is only temporary. While hard credit inquiries stay on your credit report for two years, your score could bounce back within just a few months.
Learn More: Personal Loan Requirements
Other approaches to debt consolidation
There are also other ways you might consolidate debt besides using a personal loan or balance transfer card. Here are a couple of alternatives you might consider if you’re a homeowner:
- Home equity loan: This type of installment loan uses the equity in your home as collateral. Because of the reduced risk to the lender, home equity loans generally come with low interest rates. However, keep in mind that if you’re unable to make payments, your home could be at risk.
- Home Equity Line of Credit (HELOC): A HELOC is another type of loan secured by your home’s equity. However, unlike a home equity loan that gives you a lump sum payment, a HELOC is a revolving line of credit — meaning you can continue drawing on and paying off your balance. Just remember that you could lose your home if you can’t keep up with your payments.
See: Home Equity Loan vs. Personal Loan
What makes up your credit score
The chart below shows how much weight is given to each of the factors that determine your FICO credit score:
Here’s how it breaks down:
- Payment history: Even a single late payment can damage your credit score. Late payments can stay on your credit report for up to seven years, though their effects generally lessen over time.
- Amounts owed: The amount of debt you owe factors into your credit utilization ratio. The less of your available credit you use, the higher your credit score will likely be.
- Length of credit history: How long your credit accounts have been open also affects your score. Generally, keeping your accounts open will have a positive impact on your credit over time.
- Credit mix: Opening a range of different account types — including both installment loans and revolving credit — can also help you build your credit. This demonstrates that you can handle multiple kinds of credit.
- New credit: Applying for new credit could ding your score by a few points for each hard credit check. If you’ve applied for several new accounts in a short amount of time, it could negatively impact your credit.
If you have multiple inquiries over a period of two weeks, your FICO score will generally treat these as one inquiry — lessening the effect on your credit score.
Learn More: What You Can Use a Personal Loan For
How to build your credit score after taking out a debt consolidation loan
Taking out a debt consolidation loan could be a good opportunity to build your credit if you stay on track with your payments. Here are a few ways to improve your credit with a debt consolidation loan:
- Make all of your payments on time.
- Create a budget to manage your monthly expenses and avoid taking on more debt.
- Set milestone goals for your payoff progress and celebrate them.
- If you use a balance transfer card to consolidate your debt, don’t use the card for expenses until your original debt is paid off.
Check Out: Fair Credit Personal Loans
Taking out a personal loan for debt consolidation can save you money
Consolidating your debt could help you save money in the long run. There are two main ways this might happen:
- Lower rate: Could qualify for a lower interest rate on a personal loan compared to what you’re already paying
- Quicker payoff: Might be able to pay off your debt more quickly than if you continue making the minimum payments on other debt
If you decide to take out a personal loan for debt consolidation, remember to shop around and consider as many lenders as you can. This way, you’ll be able to find the right loan for your needs.
Credible makes this easy: You can compare your prequalified rates from multiple lenders after filling out just a single form.
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