How to Get a Debt Consolidation Loan (And Actually Save Money Doing It)

How to Get a Debt Consolidation Loan (And Actually Save Money Doing It)

If you're juggling four credit card minimum payments and a personal loan bill every month, you already know the feeling: the math just doesn't seem to add up. You're paying hundreds of dollars a month and the balances barely budge. A debt consolidation loan can change that equation, but only if you do it right.

This guide walks you through exactly how to get a debt consolidation loan, what you actually need to qualify, where to find the best rates, and the traps to avoid. No fluff.

Written by the BON Credit Team | Last updated: March 2026

What Is a Debt Consolidation Loan?

A debt consolidation loan is a personal loan you use to pay off multiple existing debts, like credit cards, medical bills, or other personal loans, all at once. Instead of tracking five different due dates and interest rates, you're left with one loan, one payment, and (ideally) one lower interest rate.

Here's a simple example of what that can look like in practice:

• Credit Card A: $4,200 balance at 24% APR
• Credit Card B: $3,100 balance at 21% APR
• Medical bill: $1,800 at 0% but due in 6 months
• Personal loan: $2,500 at 18% APR

Total: $11,600 in debt across four accounts. If you consolidate that into a single personal loan at 12% APR over 36 months, your monthly payment drops, your interest costs shrink dramatically, and you have one payment to think about instead of four.

According to the Consumer Financial Protection Bureau (CFPB), debt consolidation can be a smart move, but it only works if the new loan's interest rate is genuinely lower than what you're currently paying.

How Does a Debt Consolidation Loan Work?

The mechanics are straightforward:

1. You apply for a personal loan large enough to cover your existing debts.
2. The lender approves you (based on credit score, income, and other factors).
3. Funds are deposited into your bank account, or sometimes sent directly to your creditors.
4. You pay off your old debts and now only owe the new loan.
5. You make fixed monthly payments on the consolidation loan until it's paid off.

The key variable is the interest rate. If your credit cards are charging you 20-26% APR and you can get a consolidation loan at 10-14% APR, you save real money. If the consolidation loan rate is similar or higher, it's not worth it.

For a deep dive on related strategies, check out our guide on debt avalanche vs. snowball methods to understand which payoff approach works best alongside consolidation.

What Credit Score Do You Need for a Debt Consolidation Loan?

This is the question most people want answered first. Here's the honest breakdown:

• 760+: You'll likely qualify for the best rates (6-12% APR from top lenders)
• 700-759: Good rates are still available (10-16% APR)
• 670-699: You can qualify, but rates will be higher (14-20% APR)
• 580-669: Limited options; some lenders will work with you, but rates may not save you much
• Below 580: Very few lenders; may be better to work on credit first

But credit score isn't the only thing lenders look at. Your debt-to-income ratio (DTI) matters just as much. Most lenders want your total monthly debt payments (including the new loan) to be no more than 36-43% of your gross monthly income.

If your credit score is below 670, focus on building it up first. Our post on how to improve your credit score fast in 30 days covers specific actions that move the needle quickly. Even a 30-point bump can get you into a better rate tier.

Where to Get a Debt Consolidation Loan

You have more options than most people realize. Here are the main categories:

Online Lenders

Online personal loan lenders (LightStream, SoFi, Discover, Upstart, Marcus by Goldman Sachs) tend to offer the most competitive rates and fastest funding. Many can fund within 1-3 business days. They also let you check your rate with a soft credit pull, meaning no hit to your score just for looking.

Credit Unions

Credit unions often have lower rates than traditional banks because they're nonprofit. If you're already a member of a credit union, check with them first. Many offer personal loans specifically for debt consolidation at rates that beat online lenders for members with good standing.

Traditional Banks

Big banks like Wells Fargo, Citibank, and TD Bank all offer personal loans. Existing customers sometimes get preferential rates. However, their approval requirements tend to be stricter than online lenders.

Balance Transfer Cards (for credit card debt only)

If your debt is primarily on credit cards, a 0% APR balance transfer card is another option. You move your balances to the new card and pay zero interest during the promotional period (usually 12-21 months). The catch: you need to pay it all off before the promo period ends, and there's usually a 3-5% transfer fee. Our full guide to balance transfer cards explains exactly how to use one without getting burned.

Step-by-Step: How to Apply for a Debt Consolidation Loan

Step 1: Add Up All Your Debts

Before you apply anywhere, get clear on exactly how much you owe. List every debt, its balance, its interest rate, and its minimum monthly payment. This tells you how much you need to borrow and what APR you need to actually save money.

Step 2: Check Your Credit Score

Know your score before lenders do. You can check it for free without any impact on your credit. Our guide on how to check your credit score for free shows exactly where to look. If it's lower than you'd like, spend 30-60 days improving it before applying.

Step 3: Compare Rates Using Prequalification

Use soft-pull prequalification tools (most lenders offer them) to see your likely rate before you apply. Check at least 3-4 lenders. This takes about 15 minutes and doesn't affect your credit score at all. Look at:

• APR (not just interest rate, APR includes fees)
• Loan term options (shorter = less total interest, higher monthly payment)
• Origination fees (some lenders charge 1-8% of the loan amount upfront)
• Prepayment penalties (rare, but worth checking)

Step 4: Run the Math

Don't just assume the loan will save you money. Use a free loan calculator to compare your current total monthly payments and total interest you'd pay over time versus the consolidation loan scenario. The goal is paying less in total interest, not just a lower monthly payment (a longer loan term can lower your payment while costing you more overall).

Step 5: Formally Apply

Once you've picked a lender, submit your full application. You'll typically need:

• Government-issued ID
• Social Security Number
• Proof of income (pay stubs, tax returns, or bank statements)
• Employment information
• List of debts you plan to pay off

This triggers a hard credit inquiry, which temporarily drops your score by about 5-10 points. Apply to all your top choices within a 14-day window; credit bureaus typically count multiple loan inquiries in a short period as a single inquiry.

Step 6: Pay Off Your Old Debts Immediately

Once funded, pay off your existing debts right away. Some lenders will send payments directly to your creditors, which removes the temptation to spend the money elsewhere. If funds come to you, transfer them the same day.

Step 7: Close (or Don't Close) Those Old Accounts Thoughtfully

Closing all your paid-off credit card accounts at once can actually hurt your credit score by reducing your available credit and your average account age. Consider keeping at least one or two accounts open with a zero balance. Read more about how credit utilization affects your score in our post on what is a good credit utilization percentage.

How Much Can You Actually Save?

Let's put real numbers to this. According to data from the Federal Reserve's Consumer Credit report, the average credit card interest rate in late 2025 was over 21% APR. Personal loan rates for borrowers with good credit averaged around 11-13% APR.

Scenario: $15,000 in credit card debt at 22% APR average

• Paying minimum payments only: You'd pay roughly $18,000-$22,000 in interest alone and take 20+ years to pay it off
• Consolidating at 12% APR over 48 months: Monthly payment around $395, total interest paid roughly $3,960

That's potentially $14,000+ in interest savings. The key is actually committing to the loan payments and not running the credit cards back up.

The Biggest Mistakes People Make With Debt Consolidation

Running Up New Debt on the Paid-Off Cards

This is the single most common pitfall. You pay off your cards with the consolidation loan, then gradually charge them back up. Now you have both the new loan AND the credit card balances again. If this is a real risk for you, consider keeping the cards frozen (literally, in a block of ice) or canceling the ones you don't need.

Extending the Loan Term Too Long

A 60 or 72-month term will give you a lower monthly payment, but you'll pay significantly more in total interest. Try to keep the term as short as your budget can handle while still being comfortable. And if your income increases, make extra payments to pay it off faster.

Ignoring Origination Fees

Some lenders charge 3-8% of the loan amount as an origination fee, deducted from your disbursement. On a $15,000 loan, that's $450-$1,200 that doesn't go toward paying off your debt. Factor this into your rate comparison.

Applying to Multiple Lenders in Quick Succession

Space out hard inquiries. Use soft-pull prequalification first, then apply to your top 1-2 choices within the same 14-day rate-shopping window to minimize credit score impact.

What If You Don't Qualify for a Good Rate?

If your credit score isn't where it needs to be yet, you have a few options:

• Work on your credit score first. Even 60-90 days of focused effort can improve your score enough to get into a better rate tier. See our guide on how to build credit for a complete roadmap.
• Apply with a co-signer. A trusted family member or partner with strong credit can help you qualify and get a better rate. They're on the hook if you don't pay, so take the responsibility seriously.
• Consider a secured personal loan. Using an asset (like a savings account) as collateral can unlock better rates for borrowers with lower credit scores.
• Look into nonprofit credit counseling. Organizations like the National Foundation for Credit Counseling (NFCC) offer Debt Management Plans that negotiate lower rates with creditors directly. These aren't loans; they're structured repayment plans.

For the full picture on getting out of debt, our pillar guide how to get out of debt covers every strategy from consolidation to snowball to negotiating with creditors.

How Does Debt Consolidation Affect Your Credit Score?

Short term, your score may dip slightly because of the hard inquiry and the new account lowering your average credit age. But over the medium and long term, consolidation usually helps your score by:

• Reducing your credit utilization on revolving accounts (a big factor in your score)
• Adding an on-time payment history to your record with each monthly payment
• Simplifying your payments so you're less likely to miss one

For more on what makes up your score, see what credit score is considered good or excellent.

Should You Get a Debt Consolidation Loan? (Honest Answer)

It's the right move if:

• You can get a meaningfully lower interest rate than what you're currently paying
• You have a stable income to handle the new monthly payment
• You're committed to not running up new debt on the freed-up credit cards
• You want the psychological and organizational benefit of one payment

It might not be right if:

• Your credit score is too low to get a competitive rate
• You'd need to extend your payoff timeline so long that you pay more interest overall
• You haven't addressed the spending habits that created the debt
• The loan fees eat up most of the savings

Run the numbers for your specific situation. Debt consolidation is a tool, not a magic fix. The math either works or it doesn't, and you can figure that out before you apply a single time.

How BON Credit Can Help

One of the hardest parts of debt consolidation is knowing where your credit actually stands and what moves will help you qualify for the best rates. BON Credit is a free app that helps you track and build your credit score, spot areas for improvement, and understand exactly what's affecting your score right now.

Better credit score means better loan rates. Better loan rates means more of your money stays in your pocket. Download BON Credit free and start seeing where you stand today.

Frequently Asked Questions

Does a debt consolidation loan hurt your credit score?

Short term, yes, slightly. The hard inquiry and new account can lower your score by a few points temporarily. But if you make all your payments on time and keep your credit card balances low after paying them off, your score typically improves within a few months and continues to rise as you make on-time payments.

What is the minimum credit score for a debt consolidation loan?

Most mainstream lenders require at least a 580-620 FICO score, but to get a rate low enough to actually save money, you'll want 670 or higher. Some credit unions and nonprofit programs work with lower scores through secured loans or debt management plans.

How long does it take to get a debt consolidation loan?

With an online lender, prequalification takes minutes. Full approval can happen same-day. Funds are typically deposited within 1-3 business days. Credit unions and banks may take 5-7 business days.

Can I consolidate student loans with a personal loan?

Technically yes, but it's usually a bad idea. Federal student loans have protections (income-driven repayment, forgiveness programs, deferment) that you lose permanently if you refinance into a private personal loan. Stick to federal student loan consolidation programs for federal debt.

Is debt consolidation the same as debt settlement?

No, and the difference is important. Debt consolidation is a loan that you repay in full. Debt settlement is negotiating with creditors to pay less than you owe, which typically wrecks your credit score and may have tax implications on the forgiven amount. Consolidation is a much cleaner path for most people.

How much can I save with a debt consolidation loan?

It depends on your current rates and what you can qualify for. Borrowers moving from 22% average credit card APR to a 12% personal loan typically save $3,000-$15,000 in total interest depending on the balance and loan term. Use a free loan calculator to model your specific situation before applying.