Learn about options for lowering interest costs on debt and simplifying your finances.

What does your debt look like these days? Multiple credit cards? Student loans? Medical debt? High-interest personal loans? Some combination of these debt types? If you’re struggling to make several payments to different lenders each month, a debt consolidation loan could save money and make your finances easier to manage.

Benefits of a debt consolidation loan

Consolidating debt means getting a single large loan to pay off two or more other debts. Then you pay off the loan that was used to pay off multiple other creditors. There are several benefits of managing debt this way, including:

• Simpler finances—Instead of tracking payments to multiple creditors each month, you have just one payment to make. This can also make it easier to ensure payments are on time.
• Savings on interest—Credit card interest rates average about 21% while personal loans are significantly less, averaging just under 12%. Depending on how much debt you have and the interest rate on that debt, savings on interest can be substantial with a debt consolidation loan.
• Quicker debt payoff—Since less money is going toward high interest, you can put more money toward paying off the principal and pay off the debt sooner.
• Improved credit score—Application for a debt consolidation loan may cause a small drop in your credit score initially because the lender will do a hard inquiry. However, making timely payments and keeping your total credit use under 30% of your available credit will build your credit score over time.

Debt consolidation options

There’s more than one way to consolidate debt. Three of the most common ways are:

• Credit card balance transfers—Transferring debt from a high-interest card to a low-rate credit card. Sometimes you can get 0% interest on balance transfers. Check out our balance transfers page to see what offers may be available!
• Personal loans—These loans can be secured or unsecured, meaning they may or may not require collateral. You receive a lump sum that is used to pay off other debt, then make payments until the personal loan is paid off.
• Home equity loan—If you own your home, you can tap into your equity with a home equity loan or line of credit. These loans will generally have the lowest interest compared to credit card balance transfers and personal loans.

To optimize interest savings, some borrowers first move their debt to a credit card with 0% interest for balance transfers. When the introductory rate expires, they get a personal loan or home equity loan to pay off the remaining balance.

Deciding to consolidate debt

To see if debt consolidation would help you, check out our Debt Consolidation Calculator.

Some third-party services offer debt consolidation services but beware of their fees for consolidation and monthly service.

Many people consolidate debt on their own. If you’d like personalized guidance, stop by one of our offices and talk to one of our loan officers, or check out GreenPath Financial Management Counseling. GreenPath is free for Consumers members.   

 

 All loans subject to approval. Rates, terms, and conditions are subject to change and may vary based on credit worthiness, qualifications, and collateral conditions. Federally insured by NCUA