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Best Ways to Consolidate Debt for a Debt-Free Future

Free yourself up to save for a big purchase or retirement
Compare all debt consolidation options side by side

What debt do you want to consolidate?

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Note: Others does not include mortgage.

What is debt consolidation?

Debt consolidation is the financial strategy of combining multiple debts into a single, manageable, lower-interest payment. Unsecured debts like credit card balances and medical bills have high interest rates, and reorganizing them into a single, lower- interest loan may save you money and enable you pay your debt off faster.

Learn more: What is Debt Consolidation

How to consolidate debt in easy steps on Credello?

1. Answer basic questions

Share basic details about your debt, financial health, and whether you own a home.

2. Tell us why & how you want to consolidate

We give you better personalized recommendations once we know your goals and preferences.

3. Have recent bills & credit card statements handy

This helps us determine which products may work best for you.

4. Get a list of solutions you qualify for that meet your needs

All options are customized to your debt profile and repayment preferences.

5. Easily compare

Prioritize your debt consolidation options based on how well they match your goals.

8 best debt consolidation options

1. Debt consolidation loan

A personal loan for debt consolidation can be a good way to consolidate debt if you’re able to qualify for:
  • A lower interest rate
  • A loan amount that’s enough to cover your debts
  • A comfortable repayment term
Because these loans are unsecured, what you qualify for depends on your credit score and history, so it’s important for your score to be as high as possible to qualify for the best loan (660 or higher). You can use these funds to pay off your debt balances and then you’ll only have one debt payment each month.

Find and compare the best loan options.

↓ Use the filters below to refine your search ↓

Loan Purpose

Debt consolidation

Loan Amount


Credit score

Good (660-719)


No collateral required.
Fees, such as origination fees, late payment penalties, and prepayment penalties.
Streamlines debt repayment process.
Must have good to excellent credit for low interest.
Lower interest rates for well-qualified borrowers.
Save money.
Loan amounts can range from $ to $.
Fast approval processes from many lenders

2. Balance transfer credit card

If you have high-interest credit card debt, you should consider a balance transfer credit card. Balance transfer credit cards typically have no annual fee and a 0% introductory APR, meaning you won’t have to pay any interest for a certain period of time (usually 12 to 24 months). You can transfer existing credit card balances to this card, and because of the 0% interest, you can ideally avoid paying any interest on your balance.

Remember, the 0% intro period doesn’t last forever, and you’ll start to accrue interest on any outstanding balance once the intro period is over.

Learn more: Balance Transfer Credit Cards

0% intro APR period.
Balance transfer fees (3-5%).
Pay off credit card debt faster.
Transfer limits.
Save money on interest.
Must have a good to excellent credit score.
Simplify debt into one monthly payment.
High APR after intro period is over.
Faster and easier to get than some loans.
Hard pull on credit report.
No collateral required.
Doesn’t address spending habits.

3. Home equity loan/HELOC

Home equity is the difference between the value of your home and the amount you still owe on your mortgage. Paying off your mortgage or increasing the market value of your home (such as through home improvements) can increase your home’s equity.

A home equity loan (HEL) allows you to borrow from your home equity as a lump sum of money at a fixed rate, while a home equity line of credit (HELOC) gives you a credit line to draw from at a variable rate. Both are essentially second mortgages, so it’s an additional monthly payment, but can be good options if you have enough equity to qualify.
HEL has a fixed rate and monthly payment.
HELOC has variable rates.
Larger loan amounts.
Home is used as collateral, and if you default, you could lose your home.
Longer repayment terms.
Interest is not always tax deductible.
Lower interest rates than other consolidation options.
Longer repayment timeline can mean higher overall costs.
Only borrow and pay interest on the money you actually need.
Funding takes longer.

4. 401(k) loans

A 401(k) loan allows you to borrow money from your retirement savings and pay it back (to yourself) over time (plus interest). Typically, you can borrow up to 50% of your balance for up to five years, for a maximum of $50,000. The interest rate is usually the current prime rate plus 1%. You’ll get access to the funds, and then the loan payments and interest get paid back into your account.
Flexible repayment options.
Must repay the balance within 60 days if you lose your job.
Low or no lending costs.
Taking funds during bull market can decrease overall 401(k) earnings.
Interest is repaid back to you.
Amount you borrow won’t benefit from investment gains.
Does not impact your credit.

5. CD loans

Certificate of deposit (CD) loans let you borrow money against a CD you already own. The funds in the account secure the loan, and then you can use the loan to consolidate your debt. You’ll typically receive a lower interest rate, but you may only be able to borrow a certain percentage of the account balance. CD loans can be good for building or rebuilding credit, but are not the best option if you already have established or good credit.
Lower, fixed interest rates.
Some fees may apply.
Fast, easy approval.
Risk of losing savings.
Good for building/rebuilding credit.
Can’t cash out until loan is fully paid off.
Account can continue to earn interest.
May only be able to borrow a certain percentage.

6. Peer-to-peer loan

Peer-to-peer (P2P) lending platforms pair borrowers and individual investors together for unsecured loans typically ranging $25,000 to $50,000. The higher your credit score, the lower the interest rate and the more you can borrow. When you apply to a P2P lending site, a private investor (or multiple) can fund the loan you request. You can then use those funds to pay off your debt, and you’ll repay the loan on the same site you borrow from.
Can use loan funds for just about anything.
May have higher interest rates.
Fast application, approval, and funding process.
Flexibility on application criteria.
Less time to repay the loan.
Soft credit check doesn’t impact credit.
Potentially higher monthly payments.

7. Debt management plan

With a debt management plan, you’ll work with a nonprofit credit counseling agency that will work with your creditors to try and lower your interest rates and monthly payments. They will help you create a three to five year payment schedule that will repay your debt; you’ll make monthly payments to the agency and they will repay your creditors. This can be a good option for those who have significant debt and need help creating a plan, but not all debt qualifies for this type of plan.
Can improve credit score over time.
Can decrease credit score at first.
Some organizations offer free options.
Strict requirements on how you use the money.
Low loan rates.
Can’t take out new credit while enrolled.
Only one monthly payment.
Will have to close all credit accounts.
May pay off debt faster.
Not every creditor accepts debt management plans.
May take up to five years.

Related: Pros and Cons of Debt Management Plan

8. Borrowing from friends or family

If you have friends or family members who are willing to loan you money, this can be a good option since you likely won’t owe interest and it won’t affect your credit. However, you must be willing to repay the loan on time and in full, and the terms and repayment plan should be carefully and clearly spelled out.
No eligibility criteria to meet.
Can put strain on relationships
No impact on credit.
Can cause financial harm to someone close to you if you don’t repay.
May not need to pay interest (or low interest rate).
Loan amounts may vary.

Other debt consolidation methods

1. Debt settlement

Debt settlement companies are ones who say they can renegotiate, settle, or in some ways change the terms of your debt to a creditor or debt collector. Also called “debt relief” or “debt adjusting,” they claim they can reduce how much you owe, but in many cases this can leave you in deeper debt than you were when you started.

Most of the time, debt settlement companies will ask you to stop making payments to your debts to get creditors to negotiate, but this can seriously impact your credit score and may result in the creditor filing a lawsuit. Late fees and interest will also be added.
Avoid bankruptcy.
Expensive fees.
May get some relief from debt.
May incur late fees, penalty interest, and other charges.
Debt won’t be sent to collections.
Not all creditors will work with debt settlement companies.
Typically not able to settle all debts.
Negative impact on your credit score.

2. Bankruptcy

If you’re stuck deep in debt, you may consider filing for bankruptcy. The two most common types of bankruptcy are Chapter 7 and Chapter 13, each with their own pros and cons. Chapter 7 is relatively cheaper and getting this type is very fast, but you could lose your assets and it will remain on your credit report for 10 years. Chapter 13 is a much longer process and the cost is significant, but your assets may be safe and it’s only on your credit report for seven years.
Creditors cannot pursue payment of debts or take other actions against you.
Could lose assets of value.
Mitigate pressure of handling numerous creditors.
Can be expensive.
A court-appointed representative will operate on your behalf.
Federal student loans are exempt.
Prevents further legal action.
May still be responsible for some debts.
May be able to keep some assets (with Chapter 13).
Long process.
Some back taxes can be addressed.
Can impact your job or career.
Debts may be settled for less than what you owe, or may be completely written off.
Credit score likely to drop; will remain on credit report for 7-10 years.
Experience difficulty gaining future credit; high interest rates and lower credit limits.
Does not address cause of financial trouble.
Can make renting or buying a home more difficult.

How debt consolidation affects your credit?

  1. When you first apply for a loan, it will trigger a hard credit inquiry. This will decrease your score by a few points in a short period of time.
  2. If you make late payments or miss payments altogether, your score can suffer significantly.
  3. If you continue to make your debt payments on time each month, your score will quickly rebound and even increase.
  4. Adding new accounts to your credit file reduces the average of your credit, which can temporarily lower your score. If you close credit accounts as you pay them off, that can also negatively impact the length of your credit history.
  5. Moving debt to a balance transfer credit card may increase your credit utilization, which can damage your score until you pay down the balance. Closing credit cards can also affect your utilization ratio, which should be less than 30%.

When to choose debt consolidation?

You should consider debt consolidation if:
  1. You have higher interest debt.
  2. You’re overwhelmed with payments or have a hard time keeping track of payments since debt consolidation can merge multiple payments into one.
  3. You have good credit because having a higher credit score can help you qualify for 0% balance transfer credit card and low-interest loans, which can help save you money.
  4. You have a repayment plan because without a strategy, consolidation may not be helpful. You must create a strategy that you can stick to, such as reviewing your budget and changing your spending habits.

How to choose a debt consolidation option?

There are so many debt consolidation options it can be overwhelming to choose the correct one for you. When deciding on a strategy:
  1. Analyze interest rates, loan terms, and fees.
  2. Avoid lenders that cater to consumers with less-than-ideal credit, which may mean high interest rates and poor loan terms.
  3. Shop around with different lenders to find the best rates and terms.
  4. Calculate the total cost of your current debts and compare it against the total cost of a consolidation method.

Alternatives to debt consolidation

Debt consolidation doesn’t work for everyone, and there are other solutions you can explore that don’t involve taking out new credit:
  1. Create a budget. Start by reviewing your income and expenses over the last six months, and create top spending categories to better understand where your money is coming from and going. Look for areas you can cut back on spending and reallocate cash flow toward paying off your debt. You can also set goals for your monthly spending, including paying off debt and saving.
    Continue to track your expenses to evaluate your progress over time and make adjustments as you need to.
  2. Pay off the smallest debt first. With the debt snowball method, start by ordering your debts from the smallest balance to the largest. While making the minimum payments on your other debts, put any extra money toward the debt with the lowest balance until it’s completely paid off. Then, move on to the next smallest balance, and so on, until your debt is repaid. This is called the “snowball” method because like a snowball, you’ll be able to gain momentum as you pay off debts.
  3. Pay off debt with high interest first. Called the debt avalanche method, this strategy focuses on paying off the debt with the highest interest rate first. You’ll list all your debts from highest interest rate to lowest, and while paying the minimum on all of them, put as much as you can toward the highest interest debt. When you’re done, move on to the next highest, and so on. While this strategy will help you save money on interest, it can take longer to pay off your debts.

Looking for the next step?

Let’s do it. We can match you with consolidation options based on your goals and debt info.


What type of loan is a consolidation loan?

While there are debt consolidation loans out there, most loans used to consolidate debt are personal loans. Personal loan funds can be used for just about anything, including consolidating debt. They are often unsecured, meaning you don’t need collateral to qualify, and they have fixed interest rates and monthly payments. Well-qualified borrowers will likely get a low interest rate and better terms compared to those with poor credit.

What types of debt can I consolidate?

Credit card debt may be best consolidated using a balance transfer credit card or personal loan. Another type of debt you can consolidate is high-interest personal loans. To consolidate debt, it must be unsecured, meaning it’s not backed by any collateral.

How can debt consolidation lower my interest rate?

A debt consolidation loan can help to simplify your debt payoff plan and lower the interest rate you are paying, if you get a loan that is lower than the rates on your existing debts. However, you can only get a lower rate if you have a high credit score but if you have a good credit score (in the 690 to 720 range) you still have a chance of getting a lower interest rate than your current one.

Is debt consolidation a good idea?

Debt consolidation can be a good idea if you have multiple, high interest debts, you have good credit, and you’re overwhelmed with multiple payments. Debt consolidation can help you save money and pay off your debt faster, but you must have a repayment plan in place and a strategy for correcting your spending habits to avoid debt in the future.

How to consolidate debt with bad credit?

Start by checking your credit report and making sure there are no errors or inaccuracies. Then, you’ll want to do research and compare lenders and loan amounts, repayment terms, fees, and interest from different sources. Potentially consider a secured loan. The other option is to wait until you improve your credit score so you can qualify for better debt consolidation options. Check with credit unison and online lenders if you have poor credit as they may be more likely to work with you.

How to consolidate credit card debt?

Balance transfer credit cards, personal loans for debt consolidation, home equity loans/home equity lines of credit, 401(k) loans, peer-to-peer lending, equity in owned vehicles, borrowing from friends and family, and debt management plans are all credit card debt consolidation options.

Learn More: How to Consolidate Credit Card Debt