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. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."
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 | |
| Pros |
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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.
Keep in mind: While you’ll typically need good credit to qualify for a personal loan, there are also lenders that offer personal loans for bad credit.
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) |
|---|---|---|---|---|
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.
| 9.95% - 35.99% APR | $2,000 to $35,000** | 550 | 2, 3, 4, 5* |
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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.
| 6.79% - 17.99% APR | $5,000 to $35,000 | 740 | 1, 2, 3, 4, 5 |
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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.
| 4.99% - 35.99% APR | $2,000 to $50,000 | 600 | 2, 3, 4, 5 |
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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.
| 5.99% - 24.99% APR | $2,500 to $35,000 | 660 | 3, 4, 5, 6, 7 |
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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.
| 7.99% - 29.99% APR | $10,000 to $50,000 | Not disclosed by lender | 2, 3, 4, 5 |
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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.
| 7.04% - 35.89% APR | $1,000 to $40,000 | 600 | 3, 5 |
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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.
| 15.49% - 35.99% APR | $2,000 to $36,500 | 580 | 2, 3, 4 |
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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.
| 2.49% - 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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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.
| 6.99% - 19.99% APR1 | $3,500 to $40,0002 | 660 (TransUnion FICO®️ Score 9) | 3, 4, 5, 6, 7 |
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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.
| 18.0% - 35.99% APR | $1,500 to $20,000 | None | 2, 3, 4, 5 |
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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.
| 5.99% - 24.99% APR | $5,000 to $40,000 | 600 | 2, 3, 4, 5 |
|
||||
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.
| 5.99% - 17.99% APR | $600 to $50,000 (depending on loan term) | 660 | 1, 2, 3, 4, 5 |
|
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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.
| 6.95% - 35.99% APR | $2,000 to $40,000 | 640 | 3, 5 |
|
||||
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.
| 5.99% - 18.83% APR | $5,000 to $100,000 | Does not disclose | 2, 3, 4, 5, 6, 7 |
|
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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.
| 8.93% - 35.93% APR7 | $1,000 to $50,000 | 560 | 3 to 5 years 8 |
|
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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.
| 5.94% - 35.97% APR | $1,000 to $50,000 | 560 | 2, 3, 5, 6 |
|
||||
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.
| 4.37% - 35.99% APR4 | $1,000 to $50,0005 | 580 | 3 to 5 years4 |
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Learn More: Debt Consolidation vs. Personal Loan: What Is the Difference?
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
Tip: Some balance transfer cards come without any rewards so you can focus on paying down your debt while others offer perks such as cash back.
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
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Enter the total amount borrowed
$
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Enter your annual interest rate
%
or
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Enter the amount of time you have to repay your loan
years
Total Payment
$
Total Interest
$
Monthly Payment
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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
- Debt Consolidation Loan vs. Credit Card Refinancing: How To Choose
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.
Keep in mind: Although hard credit checks can impact your credit score, there’s generally an exception for rate shopping.
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
For example: If you have a $5,000 balance on a credit card that charges 17.99% APR and pay it off with a five-year debt consolidation loan at 12.99% APR, you’ll save $684 in interest.
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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