Rates are typical market ranges and change with your credit, income and lender. Always compare the APR, which includes fees.
How it works
You take out a fixed-rate personal loan, use it to pay off your credit cards or other unsecured debts in full, then repay the loan in equal monthly payments over a set term. You still owe every dollar. The savings come from a lower interest rate and a firm payoff date.
Typical rates by credit score
| Credit score | Typical APR | Is it likely to save money? |
|---|---|---|
| 720+ | about 7–11% | Usually yes, a lot |
| 680–719 | about 11–16% | Usually yes |
| 640–679 | about 16–24% | Sometimes. Do the math. |
| Under 640 | may not qualify | Often no. Look at a DMP. |
Does it actually save you money?
Run this check before you sign:
- Compare APRs, not just rates. An origination fee is often taken out of the loan itself, so you may need to borrow more than you owe to fully pay off the cards.
- Compare total cost, not just the monthly payment. A seven-year loan can have a small payment and still cost more than paying the cards off faster.
- Use prequalification. Most online lenders and credit unions show your likely rate with a soft credit check, which doesn't affect your score.
Example: $25,000 of cards at 22%. A five-year loan at 12% with a 5% origination fee comes to a payment of about $585 a month and roughly $35,100 in total. Paying minimums on the cards instead could take over 30 years and cost about $69,800. Try your numbers in the payoff calculator.
The trap: the cards are at a $0 balance after the loan pays them off. If they get used again, you end up with the loan payment and new card debt. If that's a risk, put the cards away or consider a debt management plan, which usually closes them.
Upsides
- No missed payments or settlement marks on your credit
- A fixed payoff date
- Can lower your score's utilization over time
Downsides
- Needs fair-to-good credit and steady income
- Origination fees
- Doesn't fix overspending
Where to compare
Credit unions often have the lowest rates and fees, especially for members. Online lenders to compare include SoFi, LightStream, Discover, Upgrade and Best Egg (examples, not endorsements). Be cautious about using a home equity loan to pay off cards: it turns unsecured debt into debt secured by your house.
Common questions
What credit score do I need for a debt consolidation loan?
Many lenders want a score of roughly 640 or higher for a rate that beats credit cards, and the best rates usually go to scores above 720. Lower scores may qualify, but often at rates close to what the cards already charge.
Does a consolidation loan hurt your credit?
Applying causes a hard inquiry, which can dip your score slightly. Over time, paying the loan on time and lowering the balances on your cards usually helps your score, as long as you don't run the cards back up.
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Loan or counseling plan?
They work very differently. See which one fits your credit and budget.
Loan vs. DMP Free assessment