The best way to consolidate debt is to take out a new loan or credit card that has a lower APR than all of the original debts and then use it to pay off the original debts. This turns multiple monthly payments into one and reduces the cost of the total amount owed, allowing the borrower to get debt-free sooner. The best debt consolidation options will not charge any fees to complete this move, either.... read full answer
4 Ways to Consolidate Debt
Credit card
Doing a balance transfer to a credit card is the best way to consolidate debt when you owe a relatively small amount and will be able to pay it off within a year or two. Balance transfer credit cards typically have credit limits of $500+, and introductory 0% APRs on balance transfers tend to last for 12-20 months.
| Pros | Cons |
| Potential 0% APRs | Balance transfer fees |
| Lots of options | May not give a high enough credit limit |
| No collateral required | High regular APR after intro rate expires |
Personal loan
A personal loan is the best way to consolidate debt for people who can’t or won’t use a home as collateral but still need more funding than a credit card might provide. Plus, personal loan APRs are often lower than the regular APRs on credit cards, so they’re also good for balances that can’t be repaid quickly. Personal loans usually take only about a week to get, too, so you can consolidate sooner than with a home equity loan or HELOC.
| Pros | Cons |
| No collateral required | May have origination fees |
| Up to $100k in funding | High maximum APRs |
| Payoff periods of up to 84 months | Few reasonable options for people with bad credit |
Home equity loan
A home equity loan is the best way to consolidate debt if you’re a homeowner who owes a lot and needs a long time to pay it off. It’s also a good choice if you want to score the lowest APRs possible for multiple years. Home equity loans are much cheaper than personal loans, on average, but they require the borrower’s house as collateral. So you have to be confident in your ability to repay a home equity loan.
| Pros | Cons |
| Potentially large amount of funding | House serves as collateral |
| Long payoff periods | Not available to people who rent |
| Low minimum APRs | You may not have enough equity |
| Lower maximum APRs than HELOCs | Doesn’t offer continuous funding like a HELOC |
Home equity line of credit (HELOC)
A HELOC is the best way to consolidate debt for people who want to borrow multiple times without applying for a new loan. HELOCs have a draw period during which the user can borrow, up to their available credit, at any time. HELOCs also require a house as collateral, which means there’s a lot of risk for borrowers.
| Pros | Cons |
| Potentially large amount of funding | House serves as collateral |
| Low minimum APRs | Not available to people who rent |
| Long payoff periods | You may not have enough equity |
| Ongoing funding | High maximum APRs compared to home equity loans |
Best Ways to Consolidate Debt Compared
| Category | Funding Amounts | Funding Times | APRs |
| Credit card | $200 - $100,000+, depending on credit | Up to a few weeks, depending on if you have the card first | [ccl-avgapr-bt-intro] on average |
| Home equity loan | Depends on your equity | 2 - 6 weeks | 3% to 12% |
| HELOC | Depends on your equity | 2 - 6 weeks for approval, on demand after | 2% to 21% |
| Personal loan | $1,000 - $100,000 | 7 - 10 business days | 4% - 36% |
Best Way to Consolidate Debt Without Hurting Your Credit
The only way to consolidate debt without any credit score damage is having a friend or family member pay it off for you, then owing the debt to that person. That said, debt consolidation doesn’t usually affect your credit much.
Applying for a loan or line of credit should only drop your credit score by 5 to 10 points. And even if debt consolidation hurts your credit in the short term, it can lead to large long-term gains. You’ll be able to reduce your debt load more quickly and build up a good payment history, both of which will help your score.
Other Ways to Consolidate Debt
There are a few other ways to consolidate debt, but they’re not ideal. The first is to use a debt consolidation program. With this option, you don’t take out a loan. Instead, you make one payment per month to a company, which distributes the funds to your creditors. The company also negotiates on your behalf to try to get lower rates. But you’ll have to pay fees to the company, and you may suffer credit score damage because the program might not negotiate with creditors until you have missed a few payments.
Another option is to borrow from your retirement account. But you’ll end up having to pay interest into your account to make up for the time the money wasn’t invested. In addition, you’ll need to pay the loan back in 5 years or face an early withdrawal penalty. The timeline moves up if you lose your job, too. In that case, you’d need to pay the money back by the tax day for the year in which you lost your job.
Ultimately, the best way to consolidate debt for most people will be a personal loan because it provides decent funding amounts and APRs without requiring any collateral. To check your chances of getting approved for a personal loan, along with what rates you might qualify for, use WalletHub’s free pre-qualification tool.
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