Debt can feel overwhelming, particularly when it carries high interest rates. A personal loan for debt consolidation can be a helpful option to ease the burden and simplify repayment. Whether debt consolidation is the right choice depends on your financial situation, including factors like your debt load, income, and credit score. This article will explore the advantages and disadvantages of debt consolidation and discuss when it may be a practical solution.

Key considerations

Debt consolidation is the process of using a personal loan to combine several high-interest debts into a single monthly payment.
Debt consolidation may be a good idea if you have a large high-interest debt burden and an excellent credit score that will qualify you for a favorable interest rate on a personal loan.
Since debt consolidation doesn’t address the underlying reasons for debt, it’s important to use a loan while also working to create better financial habits.

What is debt consolidation?

Debt consolidation is the process of combining several high-interest debts into a single lower-interest rate personal loan. This approach offers several benefits, such as simplifying debt management by consolidating it into one loan with a single monthly payment. It may also reduce your overall payments, and the total amount owed by transitioning to a loan with a lower interest rate.

Pros and cons of a debt consolidation loan

As with any financial product, there are potential benefits and downsides that you’ll want to consider before applying for a personal loan to consolidate personal credit card debt.

Pros

A debt consolidation loan may prove beneficial for the following reasons.

Simplifies debt repayment: Managing a single monthly payment is far less time-intensive than juggling multiple debts. Paying off a single debt consolidation loan can help you focus on making one payment on time and in full each month.
Potential savings: By securing a lower interest rate and favorable loan term, you could reduce the overall interest paid and possibly lower your monthly payment. To estimate your potential savings, it's helpful to use a debt consolidation calculator before applying for a loan.
Potential credit score boost: If your current debt load has led to late or missed payments, it may have negatively impacted your credit score. Consolidating your debts into a single loan can simplify your payments, making it easier to manage and consistently pay on time. Over time, this consistent, on-time payment can help improve your credit score.

Cons

There are certain downsides to consider before you take on a debt consolidation loan, including:

Doesn’t address the reason for debt: A debt consolidation loan can feel like a saving grace, but if you don’t change your spending habits, you could find yourself still racking up debt on credit cards. If you choose to take out a debt consolidation loan, ensure you’re doing so while increasing your financial education and potentially working with a financial professional who can help you establish a budget and practice better spending habits.
Doesn’t guarantee lower interest: The loan interest rate you’ll qualify for depends largely on your credit score. If you’re working to improve your credit score, you may want to wait until your score is higher to qualify for the most favorable rates.
May include fees: Personal loans can have a loan origination fee that’s a percentage of the total loan amount. It’s important to calculate your interest savings based on the interest rate of the loan plus fees. If you don’t see fees listed as you research debt consolidation loans, reach out to the lender directly to confirm.

When debt consolidation makes sense

Using a personal loan for debt consolidation may make sense in the following scenarios.

You have a large debt burden and a good or excellent credit score.

Since a debt consolidation loan generally has origination fees, similar to a mortgage, it might not make financial sense to consolidate if you hold a low amount of debt. A good rule of thumb is to explore consolidation if your debt will take you longer than a year to pay off. Borrowers with higher credit scores tend to qualify for the most favorable rates. So, if your credit score falls into the average or poor ranges, you might want to wait, take steps to improve your credit score, and then reapply at a later date.

Your income will allow you to cover the monthly loan payment.

If your debt has been increasing due to not being able to afford payments, you’ll want to ensure you have the funds to cover the debt consolidation loan. Continued missed payments could cause further damage to your credit score and increase your debt load, ultimately having the opposite effect of what the loan is intended to do.

You’re ready to make big financial changes.

A debt consolidation loan is one of many steps in your journey to create a prosperous financial future. However, you need to be mentally ready to do so. If you’re okay with being in debt and don’t feel like your spending habits are a problem, taking out a debt consolidation loan may not be the most productive use of your time and money. However, if you recognize there’s room for improvement and you’re willing to curb spending by implementing healthier financial habits, taking out a debt consolidation loan may make sense.

How BHG Financial can help with debt consolidation

If you’re ready to move forward with consolidating high-interest debt, BHG Financial can help. With loan amounts up to $200,000¹ and repayment terms up to 10 years^1,2, our concierge support team is available to help you find the right loan for your situation. You can start today by checking your rate online with no application fee, commitment, or impact on personal credit.³

Consolidating personal credit card debt FAQs

Consolidating personal credit card debt can simplify your finances by combining multiple debts into a single monthly payment with more manageable interest rates. In the long run, this can save you from spending more money than you anticipated or previously agreed to on in-terest payments in the future.

Personal debt consolidation can impact your credit score differently depending on the method chosen. For example, applying for a new loan or credit card for consolidation may result in a temporary dip in your credit score due to inquiries, changes in credit utilization, and your his-tory using credit-based financial products. However, making timely payments on the consoli-dated debt can positively affect your credit score by demonstrating responsible financial man-agement.**

Yes, personal debt consolidation can be applied to various types of debt, including personal loans, medical bills, and student loans, in addition to credit card debt. Consolidating multiple debts into a single payment can streamline your repayment process and make it easier to man-age your finances overall.

With highly specialized financing options for accomplished professionals, BHG Financial offers personal loans up to $200K¹ to use as you need them. With repayment terms that last up to 10 years,^1,2you can fully bring your financial plan to action by consolidating your personal debts into a simple and affordable monthly payment to help you achieve financial peace of mind sooner rather than later.

Our payment estimator can help you see your personalized estimate quickly, and our dedicated concierge service team can serve your needs every step of the way.

¹ Terms subject to credit approval upon completion of an application. Loan sizes, interest rates, and loan terms vary based on the applicant's credit profile. Finance amount may vary depending on the applicant's state of residence.

² Personal Loan Repayment Example: A $59,755 personal loan with a 7-year term and an APR of 17.2% would require 84 monthly payments of $1,228.

³ There is no impact on your credit for applying. For personal loans, a complete credit history, which will appear as an inquiry on your credit report, will be performed upon acceptance and funding of the loan and may impact your credit.

Annual percentage rates (APRs) for BHG Financial personal loans range from 11.96% to 25.31%, with terms from 3 to 10 years.

No application fees, commitment, or impact on personal credit to estimate your payment.

Consumer loans funded by Pinnacle Bank, a Tennessee bank or County Bank. Equal Housing Lender.

For California Residents: BHG Financial loans made or arranged pursuant to California Financing Law license - Number 603G493.

IMPORTANT INFORMATION ABOUT ESTABLISHING A NEW CUSTOMER RELATIONSHIP

To help the government fight the funding of terrorism and money laundering activities, Federal law re-quires all financial institutions to obtain, verify and record information that identifies every customer. What this means for you: When you apply for a loan, we will ask for your name, address, date of birth, social security number and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents. If all required documentation is not provided, we may be unable to establish a customer relationship with you.

Is Debt Consolidation a Good Idea?