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Key Takeaways
- With generally lower interest rates than credit cards, personal loans can help you save and reduce your debt load
- Personal loans are typically unsecured, allowing for higher approval and funding speeds.
- Qualifying for a personal loan requires stable employment, steady income, and good credit.
See if you qualify for a personal loan. Start here
If you’re finding your debt burden uncomfortable, you’re not alone.
Americans held $5.17 trillion in non-housing-related debt at the end of 2025, according to the Federal Reserve. Of that total, credit card debt accounted for $1.28 trillion, which grew 5.5% year-over-year.
Many people are looking toward debt consolidation to lighten their load. Personal loans are a financial tool that can help tame debt and make it more realistic to become debt-free if used properly.
Debt consolidation can lighten your interest load
Are you paying credit card interest rates? Do you have multiple outstanding balances? Then debt consolidation could make a lot sense.
Taking out a personal loan to pay off your credit card debt may feel like a ‘robbing Peter to pay Paul’ scenario. But interest rates on credit cards can be twice as high as personal loans. Essentially rolling that debt under a personal loan puts it all in one place and can save you a ton in interest over the lending term.
How a personal loan can help with debt consolidation
Debt consolidation can provide a more affordable way forward. Personal loans typically come with significantly lower rates. They also provide a clear path to reducing your debt burden.
See if you qualify for a personal loan. Start here
That’s because these loans are highly predictable. You borrow a fixed amount and pay it back in equal monthly installments over a fixed period. That period is largely of your choosing and you’ll probably select a term that lets you comfortably afford the repayments.
But you have to set that period before you borrow. So, unlike with a credit card, you can’t be tempted to pay less when you want, or drive the balance back up.
Other advantages of personal loans include:
Another plus is that you’re much less likely to harm your credit score. If you have 10 credit cards, you have 10 times the chances to miss a payment. But that’s not where the risk ends when it comes to your credit.
Consolidating non-credit-card debt with a personal loan
Of course, credit cards aren’t the only thing you can pay off with a personal loan.
Other types of high-interest debt, like medical bills or auto loans, are consolidation candidates too. You could wrap these and other types of debt into one loan to ease the financial and mental burden.
High card balances harm your credit score
Credit scoring technologies, such as FICO’s, place a lot of emphasis on something called “credit utilization.”
This applies only to “revolving credit” (mostly store and credit cards). This formula compares your current balance to your total available credit limit. Credit utilization formulas do not apply to installment loans, which include personal loans.
For instance, imagine the following scenarios:
Good credit utilization
- 3 credit cards at $5,000 limit each ($15,000 total limit)
- $3,000 balance spread across all cards
- Credit utilization: 20%
Bad credit utilization
- 2 credit cards at $3,000 limit each ($6,000) total limit)
- $3,000 balance across both cards
- Credit utilization: 50%
While both people in the example above carry the same total balance, the second utilizes a much higher proportion of their credit limit. If your card balance is greater than 30% of your credit limit, you’ll be actively harming your credit score.
This applies to every individual card and to all your balances/limits combined. And that 30% really is a magic number. Go below that and you can help your score a bit. Go above it and you could soon cause real damage. The closer you get to maxing out your plastic, the worse things will get.
Credit utilization accounts for a whopping 30% of your total credit score, according to FICO. Even if you can’t or don’t want to pay down all your balances using a personal loan, getting them all below 30% of your credit limits would be a smart move.
Make a plan if you will use a personal loan
The benefits of debt consolidation are obvious and real. But many financial professionals will warn you before applying.
Because consolidating means borrowing more, it can become a problem if you’re not disciplined in your payments and spending habits. To avoid owing more than you did in the first place, set up a household budget and stick to it.
Using a personal loan to pay off other debts may not be the best idea if the loan’s terms result in you paying more over time or if you can’t afford the monthly payments.
The bottom line
Personal loans are faster and easier to get than mortgages. But there are still qualification standards to meet. And just like other financing types, a personal loan comes with pros and cons Whether you should get one depends on your situation.
A personal loan could make a lot of sense if you have strong credit, steady income, and are looking to consolidate high-interest debt. If you’re ready to take the next step, shop with multiple lenders so you can better negotiate a lower interest rate and carefully review all the loan’s terms before signing.
Start your application for a personal loan online now and see what you qualify for quickly and easily.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
By refinancing an existing loan, the total finance charges incurred may be higher over the life of the loan.
