What is a $15,000 debt consolidation loan?

Have you ever wondered if there's a simple fix for credit card debt? A way to trade a high-interest obligation for one that's not quite so expensive? Debt consolidation loans could be the answer you’re looking for. We’ll walk you through how they work. 

For our examples, we’ll assume you owe $15,000 across multiple credit cards. 

What is a $15,000 debt consolidation loan?

A debt consolidation loan lets you combine multiple debts—in this case, your credit cards. Here's how it works:

1. Shop around for the loan that's just right for you. 

2. Borrow enough to pay off your higher-interest debt.

3. Pay off the credit cards or other debts with the loan money. Some lenders, including Achieve, are willing to send payoffs directly to your other creditors.

4. Now you make a single monthly payment on the new loan. Since your loan contract tells you how many months you'll spend paying off the loan, you know exactly when the debt will be cleared. 

Here are a few other important details about debt consolidation loans.

Debt consolidation isn’t just for credit card debt

You could use a debt consolidation loan to pay off all sorts of debt, from medical bills to payday loans. As long as the consolidation loan terms are better than the terms of the debt you're getting rid of, you're moving in the right direction. 

Loans aren’t all the same 

Debt consolidation takes different forms. 

For example, a personal loan can typically be used for just about any purpose, including consolidating existing debt. You could also consider a home equity loan if you’re a homeowner. 

Both types of loans have pros and cons. Choosing between a home equity loan vs. a personal loan depends on many factors, including the amount you want to borrow. A $15,000 loan would be on the small side for a home equity loan, but very common for a personal loan.

Loan shopping is easy

If you've never loan shopped before, you may not realize how easy the process is. Banks, credit unions, and online lenders typically offer debt consolidation loans. Because so many financial sources vie for your business, lenders typically go out of their way to provide you with the information you need to make a good decision. 

A loan may be secured or unsecured

Remember when you got your credit card, based on nothing more than application approval and your signature on a contract? The fact that you didn't have to offer anything of value as collateral means the credit card is unsecured. 

On the other hand, when you buy a car with a car loan, the car is collateral. That means the lender can repossess the vehicle if you don't make the payments. When collateral is involved, it's a secured loan. 

Most personal loans are unsecured. Home equity loans are secured (the home is the collateral).  

Who qualifies for a $15,000 debt consolidation loan?

Debt consolidation loans are approved for all types of borrowers—people with excellent credit scores as well as those with lower scores. Borrowers with higher credit scores typically receive the lowest interest rates and most favorable loan terms. For someone with a low credit score, low interest rates may be harder to come by. If you don’t qualify for a new loan that costs less than your current debts, a consolidation loan probably won’t make sense. 

While qualification standards vary by lender, here's a basic rundown of what lenders consider:

• Credit score. Although it's not set in stone, many lenders look for a minimum credit score of around 640. Don’t be discouraged if your score is lower. Some lenders offer loans for those with lower scores. 

• Income. Lenders want to know that you have steady income and can cover your payments. 

• Debt load. Many lenders prefer a maximum debt-to-income (DTI) ratio between 35% and 40%. This is the percentage of your income that goes to housing and minimum debt payments each month.

• Collateral. It could be easier to qualify or to get a lower interest rate if you borrow against collateral.  

How much is the interest on a $15,000 debt consolidation loan?

The amount of interest you pay depends largely on three factors: your credit score, how much you borrow, and whether you borrow against collateral. Here's a peek at how much rates and payments could vary:

If possible, pay off the debt in a way that saves you money over the long term. As the table shows, the faster you pay off the loan, the less you'll pay in total interest. 

Sometimes, a low payment is more important. That’s understandable. In that case, it’s a good idea to research rates and fees carefully and minimize the amount of interest that you end up paying. You could also throw extra money at the debt when you’re able. Getting rid of it will eventually free up that cash for other financial priorities.

$15,000 debt consolidation loan example

Joe recently started a small business. While his company is finding its feet, tariffs have caused the cost of supplies to skyrocket. Joe paid the new, higher prices with his credit cards. Now he's carrying $15,000 in credit card debt and wants to control it before he gets in over his head. 

Joe doesn't own a home, so he shops for a personal loan. After comparison shopping, he figures out the top amount he can afford to pay each month toward the loan. That way, he can opt for a loan with a shorter term and pay less in total interest. 

Instead of a five-year loan, Joe goes with a three-year term. His payments are $162 more each month, and he'll save nearly $3,200 in interest payments—a worthwhile trade-off.

How a $15,000 debt consolidation loan affects your credit 

A debt consolidation loan is likely to impact your credit, both positively and negatively.

Positives

• Could help you build a positive payment history. Consolidating multiple debts is a great way to streamline your finances. With fewer payments to make each month, you could be less likely to miss one. Paying all of your bills (including the new loan) on time every month is one of the best ways to build and keep good credit. 

• Could help you improve your credit utilization. When you use an installment loan to pay off credit cards, your credit utilization ratio could go down. High credit card balances tend to have a negative impact on your credit score. If you avoid new balances on your credit cards after you pay them down with the loan, your credit standing may benefit.

Negatives

• Initial credit inquiry. When you apply, your lender will check your credit. That’s called a hard credit inquiry. Each hard inquiry could temporarily knock a few points off your score. Inquiries can affect your credit score for up to one year, but the effect gets smaller over that time. 

• Missed payments could hurt you. Missing payments on a loan is likely to damage your credit score. On a secured loan (like a HELOC) missed payments could put your collateral at risk. 

Achieve isn't a Credit Repair Organization and doesn't provide or offer services or advice to repair, modify, or improve your credit.

Steps to compare lenders and apply for a debt consolidation loan

The loan consolidation process is fairly straightforward, especially if you take the steps one at a time. 

1. Evaluate your debt. Add up how much debt you want to consolidate. 

2. Shop lenders. Seek reputable lenders with reasonable interest rates and low loan fees. Talk to lenders who can check your rate with a soft credit inquiry that doesn’t affect your credit score. Compare the details.

3. Choose a lender and apply. Once you find the loan that looks like the best fit, it’s time to submit your formal application. You might be asked to submit documents like pay recent stubs.

4. Review offers and close the loan. If you’re approved, the lender will let you know what they’re offering: the interest rate, loan terms, monthly payments, and any additional fees, like origination or administration fees. Pay attention to the APR. That’s the total cost of the loan, including the rate and fees. If you agree, you’ll sign a loan agreement and the lender will issue the loan.

5. Use the loan funds to pay off debt. Whether you do it yourself or your lender does it on your behalf, use the loan money to pay off the credit cards or other balances you’re consolidating. Letting the lender pay off your debts directly could help you qualify for a lower interest rate.

6. Turn your focus to repayment. Ensure all payments are made in full and on time. One easy way is to set up autopay with your bank. 

7. Avoid new debt. Don’t use the credit cards while you’re paying off the consolidation loan. If you think you might be tempted, close the accounts. Unless you’re confident that you can fully pay off your credit cards by the end of each billing cycle, using them could land you in even more debt. 

Properly managed, a consolidation loan can be a brilliant way to get rid of high-interest debt, speed up paying off the debt, and save money.