Debt Consolidation vs Personal Loan: Which Is Better for You?

The primary difference lies in their intended use. A debt consolidation loan is a specific type of fixed-rate personal loan designed to combine several existing debts—like credit card balances, medical bills, or other high-interest loans—into a single new loan. The goal is to simplify payments and potentially secure a lower interest rate.

A personal loan, in its broader sense, provides a lump sum of money that can be used for almost any purpose, from home renovations and medical expenses to a significant purchase or debt consolidation.

When reviewing applications for a personal loan, lenders look at credit score, debt-to-income ratio, income stability, and sometimes collateral (although most consolidation loans are unsecured). Stronger credit histories and higher income usually unlock larger loan amounts and better rates.

Here are the common debt consolidation eligibility requirements:

• Credit score: A good to excellent credit score (typically 670 and above) significantly improves your chances of approval and can provide more favorable rates. While some lenders may consider lower scores, the terms might be less attractive.
• Debt-to-income (DTI) ratio: Lenders calculate how much of your gross monthly income goes to debt payments. Lower is better, but some lenders are willing to approve borrowers with higher incomes, even if their DTI is elevated. This is because a substantial income can assure lenders that the borrower has enough money to repay the loan.
• Income and cash flow: Lenders want to see a stable and sufficient income to ensure you can comfortably make your monthly loan payments. Higher-income professionals often have an advantage.
• Collateral requirements: Most personal and debt consolidation loans are unsecured, meaning they don't require collateral like a house or car. This makes them more accessible, but also means lenders rely heavily on your creditworthiness.

The costs associated with a debt consolidation loan include the personal loan interest rate, repayment terms, and fees. These costs can vary significantly between lenders and depend on your financial profile.

The cost of your debt consolidation loan will also depend on your repayment terms and loan amount. The loan term comparison below shows how monthly costs differ based on your repayment term.

Most debt consolidation loans are considered more affordable than high-rate credit cards because the rate is lower and the payments are fixed. Shop around to compare loan offers with several lenders to find the right loan for your budget.

FYI: BHG Financial lets you explore personal loan and debt consolidation loan estimates in minutes. There’s no impact on your credit score to view offers.¹

A debt consolidation loan can have both immediate and long-term impacts on your credit score. When you apply for a debt consolidation loan, expect a small, temporary score dip from the hard inquiry and opening a new account. After paying down revolving debt, many borrowers see their credit scores rebound due to reduced utilization and consistent payments on the new loan.

Here are the key credit factors in play:

1. Hard inquiry: A hard credit inquiry performed during the application process can lower your score by a few points temporarily.
2. Credit utilization: Paying off high-interest credit cards lowers your utilization ratio, often giving your score a boost. The credit utilization ratio is based on revolving credit, like credit cards—personal loans are typically not included in the calculation.
3. Credit mix: Adding an installment loan (like a debt consolidation or personal loan) to your credit report can diversify your mix and positively impact your score.
4. Payment history: Making on-time payments on the new loan builds positive history, the biggest factor in your credit score. Conversely, missed payments will negatively impact your score.

There are several debt consolidation benefits that make a debt consolidation loan an attractive balance transfer alternative.

If the loan lowers your APR, gives you a payoff schedule that fits your budget, and helps you break free from the revolving balance cycle, it can be a smarter choice than balance transfer credit cards or other loan types—especially if you’re juggling multiple high APR cards or loans and want a single fixed payment.

You might also choose it when you want a flexible—longer or shorter—repayment term. More importantly, these loans can be helpful if you need access to a larger lump sum. Some lenders can only provide loans up to $100,000 and terms up to seven years, while a select few (including BHG Financial) extend much higher for qualified professionals, up to $250,000² and terms up to 10 years.^2,3

Managing substantial debt requires a lender who understands your unique financial picture. Our personalized lending process includes expert support tailored to your situation.

BHG Financial offers fixed APR personal loans up to $250,000,² unlocking more opportunities to consolidate significant amounts of debt or handle multiple goals at once. Extended repayment options of up to 10 years^2,3 also help lower monthly payments, even for larger loans.

FYI: In 2025, The Wall Street Journal named BHG Financial the best personal loan for large amounts because we offer one of the largest loan amounts in the industry—up to $250,000.²

With BHG, you gain a structured plan, financial clarity, and the support you need to move confidently toward debt freedom. Ready to see what’s possible? Use our quick and easy payment estimator to get your personalized loan offers in just seconds.