5 Best Debt Consolidation Options

Adam Gloyd and his then-bride-to-be considered multiple debt consolidation options in 2024. Before their October wedding, the happy couple “had some unexpected vehicle, medical, home and pet expenses” that, in addition to their forthcoming ceremony and celebration, caused them to run up multiple credit card balances and bills. 

“Since some [of it] was more pending bills than debt… a balance transfer wouldn’t work,” said Gloyd, a senior platform engineer at Bankrate. “A home equity loan would have worked, and we would have enough equity to cover the expenses, but I didn’t like the idea of borrowing more against our home since we’re at less than 20% equity.”

Ultimately, the Gloyds settled on borrowing a three-year, $30,000 personal loan in September and, thanks to a recent cash infusion, are set up for success in repayment. Like them, you can weigh the pros and cons of different products to pick the best debt consolidation method for your situation.

Debt consolidation options

1. Balance transfer credit card

The best balance transfer cards often come with zero interest or a very low interest rate for an introductory period, usually up to 18-21 months. These cards allow you to move balances from high-interest rate credit cards and other debt to the new card. The idea is to pay the entire balance before the promotional APR period ends. Otherwise, you risk racking up even more interest than you started with.

Good option if you…

• Have good-to-excellent credit to qualify for a card with a high-enough limit to accommodate your cumulative debt.
• Avoid using your existing credit cards once the balances have been shifted to the new card.
• Make a plan to pay off the debt before the credit card’s introductory rate expires.

Next step: Use a credit card balance transfer calculator to see how long it would take to zero your debt. Remember to account for the balance transfer fee when estimating your potential savings.

2. Home equity loan or home equity line of credit (HELOC)

Your home equity is the difference between your home’s appraised value and how much you owe on your mortgage. If you’re a homeowner with enough equity and a good credit history, you can borrow some of that equity at a competitive rate to consolidate your debt.

There are two primary debt consolidation options available to homeowners:

Both products act as second mortgages, which means you’ll add another monthly payment to your plate. The key to remember is that home equity loan payment amounts are static during your repayment, while HELOC payments can rise or fall, bringing uncertainty to your budget.

In any case, a home equity loan might be the more logical choice for debt consolidation, as you’d be seeking a predetermined lump sum.

Good option if you…

• Have significant equity in your home and prefer a long repayment timeline.
• Are comfortable using your home as collateral for the loan — which leaves it vulnerable to potential foreclosure if your repayment goes awry (like with your primary mortgage).

Next step: Input your details into a home equity loan calculator to estimate your borrowing capacity. 

3. Debt consolidation loan

A debt consolidation loan could be a wise choice if you qualify for a low interest rate, These loans are typically unsecured, so your rate and borrowing limit hinge on your credit profile (or your co-applicant’s, if applicable).

With how debt consolidation loans work, you’ll use all or a portion of the loan proceeds to pay off the balances you want to consolidate. Like a balance transfer credit card, instead of paying each creditor monthly, you’d make a single monthly payment on the personal loan to streamline the debt payoff process.

Good option if you…

• Have good-to-excellent credit, meaning a credit score in at least the mid-600s and a history of making on-time debt payments.
• Avoid the high interest rates synonymous with bad credit personal loans.
• Work with a lender that offers discounts and doesn’t charge origination fees.

Next step: Estimate borrowing costs using a personal loan calculator. If you’re not sure about your potential interest rate, pre-qualify with a couple of lenders to check your eligibility and receive quotes without submitting to a hard credit check.

4. Peer-to-peer loan

Peer-to-peer (P2P) lending platforms pair borrowers with individual investors for funding that generally ranges from $2,000 to $50,000. Like personal loans, P2P loans are unsecured, so your credit history is a key eligibility factor. The higher your credit score, the lower the interest rate and the more you can borrow.

In addition, eligibility requirements for P2P loans aren’t always as strict as other financing types. Some P2P lenders allow applicants to qualify with a lower credit score, but be wary of higher fees and interest rates (as compared to other debt consolidation options). 

Like with a debt consolidation loan, confirm that the total amount you pay for a P2P loan would be less than what you are already paying your current creditors.

Good option if you…

• Have a lower credit score or limited credit history — and can’t get a better deal elsewhere.
• Value the ease of potentially getting multiple investor offers (but realize this is not a substitute for shopping beyond a single marketplace).
• Identify a P2P lender that doesn’t charge exorbitant fees.
• Don’t mind the potentially slower funding process (as compared to personal loans).

Next step: Before resorting to a P2P loan, you might work to improve your credit. This way, you can qualify more easily, increase your odds of a lower APR and potentially open up other debt consolidation possibilities.

5. Debt management plan

If you want debt consolidation options that don’t require taking out a loan or credit card, a debt management plan (DMP) could be right for you — especially as a way to avoid bankruptcy.

With a debt management plan, you work with a nonprofit credit counseling agency to negotiate with creditors and draft a payoff plan. You close all credit card accounts and make one monthly payment to the agency, which pays your creditors on your behalf.  

Note that a debt relief company is different from a counseling agency, typically offering the service of pursuing debt settlement.

Good option if you…

• Are deep in debt and need help structuring repayments.
• Have unsecured debt that qualifies for a DMP.
• Earn sufficient income to repay at least some of your debt.
• Don’t mind the three-to-five-year debt payoff timeline of DMPs.

Next step: Research nonprofit credit counseling agencies that have gained approval of the Department of Justice.

Reasons to consolidate your debt

Debt consolidation features multiple benefits, including streamlining your payments and potentially lowering your average interest rate.

• A single monthly payment, which can simplify your budget.
• Lower interest rates, if you have good or excellent credit (or a creditworthy cosigner or co-borrower).
• Predictable monthly dues, thanks to a fixed interest rate and repayment term (the calling cards of installment loans).
• Credit improvement, as long as you make on-time payments toward your new loan.
• Faster debt payment, assuming you opt for a shorter repayment term or make extra payments with regularity.

How to choose the best debt consolidation method for you

A good first step: Check your credit score and the types of debt you need to consolidate along with their balances, interest rates and monthly payments. This will help you better understand the type of loan you’ll need.

For instance, if you’re trying to consolidate $5,000 worth of credit card debt and have good or excellent credit, a balance transfer credit card could be the best option. On the other hand, if you’re a homeowner with less-than-stellar credit and a considerable amount of debt, then a home equity loan could be a better choice.

Regardless of the route you choose, always calculate the total cost of your current debt repayment and compare it against the total cost of any consolidation method or alternative option. This way, you’ll choose the best debt consolidation lender and option for your finances.

What’s your next step?

To identify the best way to consolidate debt, once and for all. Then you can avoid being among the sidelined: More than half of indebted credit card holders were in debt for at least one year, according to a January Bankrate survey.

Because the best debt consolidation option will depend on your unique situation, including your credit score and whether you want to leverage (and risk) your home’s equity, it may be time to look inward. Perform a financial health checkup, including by creating or optimizing your budget and calculating your debt-to-income ratio.

Once you know where you stand and what you want out of consolidation, it should be far easier to determine which option best fits your needs. If you still have multiple consolidation methods as possibilities, compare the total borrowing costs of each to figure which is most cost-efficient. Bankrate calculators can help.