What Is a Personal Loan for Debt Consolidation?

Let me break this down simply. A personal loan for debt consolidation is when you take out one new loan and use that money to pay off multiple debts – usually credit cards. The goal? Replace several high-interest payments with one lower-interest payment.

Here’s how it typically works: You apply for a personal loan (let’s say $20,000). If approved, you get that money in a lump sum. You then use it to pay off all your credit cards. Now instead of juggling five credit card payments at 20-24% APR, you have one loan payment at maybe 10-12% APR.

The key difference between a “personal loan” and a “debt consolidation loan”? Honestly, not much. They’re typically the same product – just marketed differently. Some lenders will send the money directly to your creditors (which can come with a rate discount), while others deposit it in your bank account and you handle the payoffs yourself.

Best Personal Loan Options for Debt Consolidation (December 2025)

I’ve reviewed the current market, and here are the lenders actually offering competitive rates right now. These aren’t just “best of” picks – these are based on real data from December 2025.

What surprised me in my research? Wells Fargo’s rates starting at 6.74% are some of the lowest I’ve seen for qualified borrowers. But – and this is important – that low rate requires a relationship discount (having a Wells Fargo checking account) and excellent credit. Without those, you’re looking at higher rates.

If your credit is in the fair range (580-669), Upgrade and Best Egg are your better bets. They accept lower credit scores, though you’ll pay more in interest and likely face an origination fee of 1.85% to 9.99%.

Personal Loan vs Debt Consolidation: What’s the Actual Difference?

Here’s where it gets a bit confusing, because lenders don’t always use these terms consistently. Let me clarify what people actually mean when they say these things.

The Terms Explained:

“Personal Loan” is the product type. It’s an unsecured installment loan you can use for pretty much anything – home improvements, medical bills, vacations, or yes, debt consolidation. You borrow a fixed amount, get fixed monthly payments, and pay it back over a set term (usually 2-7 years).

“Debt Consolidation Loan” is just marketing speak for a personal loan that you’re specifically using to pay off other debts. Some lenders have branded it this way, and they might offer perks like direct payment to creditors or a slight rate discount if you use it for consolidation. But mechanically? It’s the same product.

The confusion comes when people compare “personal loans” to “debt consolidation” as if they’re different solutions. They’re not. What IS different are the other debt consolidation methods:

• Balance Transfer Credit Cards: 0% APR for 15-21 months, but you pay a 3-5% transfer fee upfront, and you need excellent credit to qualify.
• Home Equity Loans/HELOCs: Rates as low as 7-10%, but your house is collateral. Miss payments and you could lose your home.
• Debt Management Plans (DMPs): Work with a credit counseling agency. They negotiate with creditors, but it shows on your credit report.
• Personal Loans for Debt Consolidation: Fixed rates, no collateral required, doesn’t affect existing credit lines.

So when someone asks “should I get a personal loan or do debt consolidation?” – they’re really asking “which debt consolidation method is best?” And a personal loan is one of those methods.

Should You Actually Do This? Honest Pros and Cons

Look, I’ve seen people save thousands with consolidation. I’ve also seen people make their situation worse. Here’s what you need to consider.

Here’s the harsh reality: consolidation only works if you actually stop using your credit cards after you pay them off. According to data I’ve seen, roughly 40% of people who consolidate end up accumulating new credit card debt within a year. Don’t be that person.

When Does This Actually Make Sense?

You’re a good candidate for a personal loan to consolidate debt if you check these boxes:

1. Your credit score is 650 or higher. Below this, you might not qualify for a rate low enough to make consolidation worthwhile.
2. You’re paying more than 15% APR on your current debts. If your cards are at 22-24%, and you can get a loan at 10-12%, the math works.
3. You have a plan to not use those credit cards. Cut them up, freeze them, whatever it takes. Otherwise you’re just adding more debt on top.
4. You have stable income. Lenders verify this, and for good reason – you need to be able to afford the new payment.
5. Your total debt is manageable. Most lenders max out around $40,000-$50,000. If you owe way more than that, you might need a different solution.

It does NOT make sense if you’re barely making minimum payments now and a consolidation loan won’t reduce your monthly payment enough to help. In that case, you might want to look into a debt management plan through a nonprofit credit counselor instead.