5 Financial Experts Offer Their Best Tips to Consolidate Debt With a Personal Loan

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

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If you’re struggling to repay high-interest loans or credit card debt, you don’t need anyone to tell you how difficult interest charges make it to pay off what you owe.

But it’s often possible to lower your interest rate by taking out a personal loan to consolidate your debt. To find out if it’s a good option for you and to better understand the pros and cons of using a personal loan to consolidate debt, read on for four tips from financial experts.

1. Consolidating debt isn’t for everyone

Consolidating debt using a personal loan could reduce your interest rate and lower your monthly payments — but not everyone can or should take out a debt consolidation loan.

“Only do it if the terms are right for you,” advised Clint Haynes, a certified financial planner and founder of NextGen Wealth. Haynes identified three types of people who might benefit from debt consolidation:

  • People who are looking to combine several loans into one account
  • People who qualify for a lower interest rate
  • People who are looking to pay off their loans over a shorter period of time

However, Haynes warned that you’ll need to make sure you can qualify for a loan with affordable monthly payments before going through with debt consolidation.

To qualify for a desirable consolidation loan, you’ll typically need a good credit score and proof of steady income. If you have poor credit and don’t earn much, you’ll likely need a cosigner to qualify.

There are serious consequences for missing payments on personal loans, so make sure you have control over your finances and room in your budget for loan repayment.

“Borrowers who are masters of cash flow and truly understand how money comes in and out of their lives would be in a good position to use these types of loans,” said Douglas Boneparth, a certified financial planner, financial advisor, and president of Bone Fide Wealth.

2. Don’t consolidate if you don’t have your spending under control

Financial experts identified two big dangers of using a loan to consolidate debt:

  • Thinking you’ve solved your debt problems with the new loan
  • Taking on new debt once you’ve consolidated your old accounts

“Transferring debt isn’t enough to get out from under debt,” said Laura Morganelli, a certified financial planner and financial advisor with Abacus Wealth Partners. When you take out a personal loan to repay your other debt, all you’ve done is move your debt around to take advantage of better repayment terms. It isn’t a substitute for a detailed plan that empowers you to take charge of your debt.

After you consolidate, create a strategy to repay your debt on schedule. If you’re serious about becoming debt-free, the debt snowball and debt avalanche methods are two good approaches to repayment.

You also need to make sure you’ve changed your spending habits. Once you’ve paid off your credit cards with a consolidation loan, you risk maxing out those cards again if you continue using them.

“Amassing credit card debt typically is an indicator that you’re living outside of your income,” Boneparth said. “Just because you’ve put the debt under control with a consolidation loan doesn’t mean you’ve changed your spending behaviors.”

Create a detailed budget and track your spending for a month or two to see if you can live by it. Once you’re sure you won’t amass credit card debt again, start looking into debt consolidation.

3. Don’t focus solely on monthly payments

Far too many people consolidate debt solely to lower their monthly payments.

“Sometimes we find a monthly payment may decrease due to debt consolidation, but the term of the loan is longer,” said Magdalena Johndrow, a certified fund specialist and associate financial advisor with Farmington River Financial Group. “This may result in actually paying more interest over time.”

So, instead of focusing on your monthly payments or interest rate alone, pay attention to your loan’s total cost.

“No one overlooks the interest rate, but a lot of people overlook the amount of time it takes to pay off the debt,” said Scott G. Eichler, an investment advisor representative and financial advisor at Newport Wealth Advisors. “Often, the real culprit of a lower payment is a longer term of repayment. Ultimately, while the interest is lower, the amount of money paid to the lender is greater.”

Use our personal loan calculator to determine a loan’s total cost and compare it to your current repayment plan. You also can compare the repayment timeline. “Typically, if the interest rate is lower and the length of time is the same or shorter than that of the high-interest debt, you should see some savings,” Johndrow said.

Eichler recommended another approach: Consolidate your debt but continue paying the same amount, even if the new loan has a lower minimum payment. “You can cut your payments, but don’t pay less,” he advised. “Get that debt paid off. Lowering the necessary payment means you can pay off your debt’s principal.”

4. Pay attention to the lender and loan terms

Finally, it’s important to shop around carefully before you borrow. “Not all lenders are the same,” said Morganelli. “Reaching out to multiple lenders is the best way to ensure you get the best rate possible.”

She also recommended reading the fine print to identify all loan costs and fees. “People tend to think it’s just the interest rate they need to be worried about, but often there are other fees lurking around the corner,” she warned.

“For example, some lenders may impose a prepayment penalty, which essentially means you’re penalized for paying off a loan earlier than anticipated,” she said. “Always ask to have all fees associated with the loan listed in a clear, concise manner.”

Should you use a personal loan to consolidate debt?

Bottom line: If you qualify for a loan with better terms and have a plan to get your spending and debt under control, you could save a lot of money by consolidating high-interest debt with a personal loan.

Our credit card consolidation calculator can help you figure out how much you’ll save, and our personal loan marketplace is a great place to look for personal loans. Hopefully, you’ll find a loan that works for you so you can get one step closer to becoming debt-free.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.199% APR to 15.365% APR (with AutoPay). Variable rates from 6.145% APR to 14.685% APR (with AutoPay). SoFi rate ranges are current as of June 15, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.145% APR assumes current 1-month LIBOR rate of 1.97% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply:SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
6.15% – 15.37%1$5,000 - $100,000
Check rate nowon SLH's secure site
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.