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Debt Consolidation Loans Are at Record Highs—Should You Get One?

Debt Consolidation Loans Are at Record Highs—Should You Get One?

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June 2, 2026

A woman contemplating whether it's worth it to get a debt consolidation loan.

A debt consolidation loan can lower your interest costs and simplify repayment, but only if you consolidate the right debts at the right rate. Whether it's worth it depends on your APRs, repayment terms, and ability to stick to a budget.

Personal loans are more popular than ever, with TransUnion reporting record-high originations in 2025 and total balances reaching $276 billion. Personal loans used for debt consolidation drive much of that demand. With average credit card APRs hovering around 21% compared to roughly 11.4% for personal loans, consolidating can lower interest costs and simplify repayment for the right borrower.

But will a debt consolidation loan actually help you get out of debt, or will it further dig you into it? Here’s a framework you can use to decide whether debt consolidation loans can help you achieve greater financial freedom.

Key Insights

Debt consolidation loans can lower interest costs when the new APR is lower than existing debt rates, especially for high-interest credit cards.
Lower monthly payments may come with longer repayment terms and higher total interest costs over time.
Successful debt consolidation usually requires budgeting, emergency savings, and avoiding new debt.
Higher credit scores can unlock significantly lower consolidation loan rates and better terms.
Alternatives like balance transfers, debt management plans, and debt settlement may work better for some borrowers.

What Is a Debt Consolidation Loan?

A debt consolidation loan is a personal loan used to pay off multiple existing debts, leaving you with a single fixed monthly payment at one interest rate. These loans are typically repaid over one to seven years and usually don’t require collateral.

You can apply for them through banks, credit unions, online lenders, or specialized personal loan providers. Most people use debt consolidation loans to consolidate credit card debt, but they can also help with other types of debt, like payday loans.

When Do Debt Consolidation Loans Save You Money?

Your New Rate Must Beat the Debts You're Consolidating

Debt consolidation generally saves you money if your new loan’s APR is lower than the APRs of the debts you’re consolidating, assuming you keep the same repayment length. That means you should avoid rolling lower-rate debt into a higher-rate loan.

For example, if your consolidation loan’s APR is 12%, and your debts include two credit cards at APRs of 24% and 15%, plus an auto loan at 7%, you’ll save the most by consolidating just the credit cards and leaving the auto loan alone.

Don't Go by the Average

Many people mistakenly average the APRs on all their debts and assume a consolidation loan is worthwhile if its rate is below that average. In reality, debts with lower interest rates than your new loan will generally save you more money in interest.

If your debt consolidation loan has a longer repayment term than the debt it's replacing, you might pay more in interest overall, but your monthly payment will be lower. If you’re struggling to pay your bills, a lower monthly payment can help.

Pro tip: A 40-point credit score improvement can shave 5 to 10 percentage points off your consolidation loan rate, especially if it pushes you past 700. That’s the threshold where lenders start offering their most competitive rates.

Should I Get a Debt Consolidation Loan? A Self-Assessment Questionnaire

Annie Hanson, Accredited Financial Counselor and owner of Mindfully Money, recommends asking yourself these questions before taking out a personal loan for debt consolidation:

Am I still accumulating debt? Are my expenses greater than my income? If so, focus on increasing your income and reducing expenses before considering a loan.
Do I have money set aside for upcoming or likely expenses? Building a realistic budget that includes savings for larger bills, like property taxes, can help you avoid future debt.
Do I have an emergency fund so I don’t have to go into debt when something unexpected happens? Many experts suggest starting an emergency fund with at least $500 to $1,500 as your first step toward getting out of debt.
Can I reliably make the loan payment every month? Missing payments can lead to late fees and damage your credit score.

Josh Richner, founder of FaithWorks Financial, a national debt counseling agency, adds the following questions:

Do I have sufficient credit to qualify? Most traditional lenders look for a score of approximately 640 or higher for reasonable terms. Lenders willing to extend loans to lower-credit borrowers may impose difficult terms that create more hardship than they solve.
Am I current (or nearly current) on my accounts? Being behind can limit your eligibility for a debt consolidation loan.
Have I explored whether I can solve this without taking on new debt?

Richner notes that the biggest pitfall is skipping the last step. “People assume a loan is the solution without first exploring approaches that don't require adding new debt. A debt management plan, for example, can often reduce interest rates and payments without requiring a new loan.”

How to Avoid Going Further Into Debt After Consolidating

TransUnion data shows that credit card balances were cut to less than half after consolidation. But within 18 months, balances often crept back up to near pre-consolidation levels. Those who stay out of debt after consolidating usually:

Have an emergency fund
Close or freeze paid-off credit cards
Stick to a budget

"When you have a stable budget and an emergency fund, your chances of successfully paying off debt rise significantly," says Hanson. "It often feels wrong to put money in savings when you could be paying off debt, but doing so is the #1 thing you can do to prevent using debt when things happen."

Remove the Temptation to Spend

Alexander Katsman, Founder and CEO of Credit Booster AI and Credit Booster, a professional credit repair company, recommends taking these additional steps to avoid temptation:

Unlink credit cards from online stores like Amazon and DoorDash
Cancel recurring subscriptions you don't need
Use your card's lock feature to prevent new charges without closing the account, which can hurt your credit score

Some people even freeze their cards, literally, to remove the temptation to spend. "I have a client, a trucker from Chicago, who put his cards in a bag of water and stuck them in the freezer," says Katsman. "I know it sounds dumb, but it worked. Twenty minutes to thaw an ice block is enough time to think about what you're doing. He paid off his consolidation loan in 14 months. Sometimes simple beats smart."

3 Alternatives to Debt Consolidation

Some people use other strategies other than a debt consolidation loan to manage debt, such as:

Credit card balance transfers: Move balances to a new credit card with a 0% introductory APR. This works best for borrowers with good credit who can pay off the balance during the intro promo period, typically 12 to 21 months.
Debt management plan: Work with a nonprofit credit counseling agency to create a structured repayment plan. Richner recommends starting here if your credit score is about 660 or higher.
Debt settlement: Negotiate with a debt settlement company to reduce what you owe. This may be a better option for borrowers who are already behind on payments or have poor credit.

Some people use home equity loans or lines of credit (HELOCs) to consolidate debt, but this is riskier; if you default, you could lose your home. Experts generally recommend other options first.

What To Do Before Applying for a Debt Consolidation Loan: A Step-by-Step Guide

Taking a few strategic steps before you apply can improve your chances of approval, help you qualify for a lower interest rate, and confirm that a debt consolidation loan is the best answer to tackling your debt. Here’s what Katsman recommends doing before you submit an application:

Pull your credit report: Get reports from all three bureaus for free at annualcreditreport.com and dispute any errors. Katsman says some of his clients have received a full point lower on their loan rate just by correcting mistakes on their reports.
Calculate your debt-to-income (DTI) ratio: The Consumer Finance Protection Bureau (CFPB) has a helpful debt-to-income calculator. A DTI of 35% or less gives you the best chance for approval and the lowest rates. Approval is more challenging if your DTI is over 43%.
Stabilize your cash flow: Building—and sticking to—a budget will help you track spending, cut unnecessary costs, lower your DTI, and free up cash to pay off debt. Aim to build an emergency fund of at least $500, though $1,000 to $1,500 better.
Contact each creditor to request a lower rate: If enough creditors say yes, your monthly payment may be low enough that consolidating debt feels less necessary.
Prequalify with at least three lenders: Prequalifying won’t affect your credit score; only applying for the loan will. As for how to compare debt consolidation loans, look at APRs, fees, and terms. APRs provide a better idea of the loan’s true cost than interest rates.
Meet with a nonprofit credit counselor: Their services are often free or low-cost. Nonprofit credit counselors can give you unbiased advice about whether a debt consolidation loan is your best option.

The Bottom Line

Debt consolidation has its pros and cons. While debt consolidation loans can help you pay off debt faster and save on interest, they aren’t right for everyone.

Whether it’s a good fit depends on your debt specifics, your credit profile, and how well you can stick to a budget. If you’re not sure, consider speaking with a nonprofit credit counselor to develop a personalized financial plan.

Written byLorraine Roberte

Lorraine Roberte is a trusted debt and mortgage expert for Besmoney.com. As the CEO and Founder of Crafty Writing, she specializes in personal finance and insurance content. She has written for leading publications like AAA, GoodRx, Investopedia, PNC Bank, CNN Underscored, Bankrate, and many more. She does the hard work of breaking down complex financial topics like loans, mortgages, debt, and insurance coverage to help readers make confident decisions.