How online debt consolidation can streamline your finances

By Aaron Crowe

Reviewed by Kimberly Rotter

Jul 16, 2023

Read time: 7 min

Smiling couple working at table.

Key takeaways:

  • Online debt consolidation can reduce multiple monthly payments down to one.

  • Debt consolidation loans can last 2–30 years, giving you the time you need to pay off debts.

  • You still have options to deal with your debt—even if you don’t qualify for a loan.

Imagine flipping a switch every month, and when you do, some of your debt goes away. That’s what it feels like to make one fixed monthly payment against your debt instead of multiple payments, all due on different dates, with interest rates that change like the weather.

If you’re ready to streamline your finances and move your higher-interest debts to a lower-interest loan, it’s time to learn about online debt consolidation loans. 

Let’s look at how online consolidation loans work so that you can decide whether a loan might be right for you.

Online debt consolidation

Online debt consolidation is a way to roll all or parts of other debts, such as credit cards and personal loans, into one new loan with a fixed monthly payment. You’ll no longer have to juggle multiple bills, interest rates, or payment dates. Instead, you’ll have one payment date, and one amount due that will remain the same from month to month.

You may be able to move your debts to a loan with a lower interest rate. This can help you get rid of debt sooner.

You can consolidate debts through an online lender. This can be faster and cheaper than going through a bank that you visit in person. The entire application process is done online and can be completed in a few minutes. 

How online debt consolidation works

Online debt consolidation doesn’t eliminate your debts; it moves them. The new loan should have a lower interest rate than the debts you’re consolidating. If it doesn’t, it might not make financial sense to get the new loan. The interest rate on the new loan is fixed (stays the same throughout the life of the loan). This gives you a steady monthly payment that doesn’t change. Predictable payments can help you budget more easily.

Once you’re approved, the money might be given to you in the form of a check or an electronic transfer to your bank account. Or the lender might pay off your creditors directly. Sometimes you can qualify for an interest rate discount by letting the lender send the money directly to your other creditors.

Online debt consolidation requirements

Personal loan

Most personal loans are unsecured loans that don’t require collateral. That means you qualify based on your credit standing, not based on having something valuable to borrow against. Personal loans tend to have lower interest rates than credit cards, so they can be a good option for consolidating debts.

Personal loans are usually for $5,000 to $50,000. The minimum credit score to qualify is usually between 620 and 680. There are exceptions, of course. These parameters are common, but some lenders specialize in offering loans to people with lower credit scores or in making smaller or larger loans. 

If you use a personal loan to pay off credit cards, your minimum payment might go up. That’s because personal loans are designed to be repaid over 2–5 years. Credit card minimum payments are low enough to keep you in debt for a lot longer. The sooner you pay off a debt, the less interest you’ll pay on it. So even with a higher payment, you could be improving your financial situation.

When you apply for a personal loan, the lender will tell you how much of a loan you qualify for, your monthly payment, and other details. You decide if it fits in your budget by reviewing your monthly expenses, including any debt you’re paying off, to determine if you can afford the payments on the personal loan.

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Home equity loan

Homeownership is the main requirement for a home equity loan. Using a home equity loan to pay off debt requires having equity. You can get a rough idea of how much equity you have by taking your home’s value today and subtracting how much you still owe on your mortgage loan.

Home equity loans tend to have higher borrowing limits than personal loans, so you could potentially cover a larger expense, including higher amounts of debt. The repayment period is usually between 10 and 30 years.

A home equity loan is a second mortgage that’s secured by your home. That means that if you don’t repay the loan, you could lose your home. Secured loans are a lower risk for the lender, so home equity loans tend to have lower interest rates than personal loans.

Homeowners, get help with your high-interest debt

Use the equity in your home to consolidate debt, lower your monthly payments, and reduce your stress.

Alternatives to a debt consolidation loan

In case a personal loan or a home equity loan doesn’t turn out to be the right choice for you, here are other options you could consider. 

Debt resolution

When you enroll in debt resolution, a team of experts negotiates with your creditors to reduce the amount you owe. You can then pay off debts faster than you would by making the minimum monthly payments. It’s an option to consider if you can’t afford to repay your debts in full.

Debt resolution programs don’t have a minimum credit score requirement.

Cash-out refinance

A cash-out refinance means you replace your current mortgage with a new one that’s bigger. The lender pays off your mortgage and gives you the difference in cash. You can then use the money toward your financial goals, including paying off other debts. A cash-out refinance may be a good idea if you can get a lower interest rate than what you’re paying on your current mortgage. One downside is that the new loan could put you back at the beginning of a 30-year repayment term.

0% balance transfer credit card

If you have a good credit score, you might qualify for a 0% interest rate on a balance transfer credit card. For 6–21 months, depending on the card, you won’t be charged interest. You’ll most likely pay a fee to transfer balances from other credit cards. It’s typically between 2% and 5% of the amount you transfer. If you pay the new account off before the promotional period ends, then you won’t pay any interest on the transferred balance. 

A common pitfall to be aware of is that some people charge the paid-off cards back up after they move the balances. That would leave you with even more debt. Balance transfers are best used as a one-time tactic and part of a larger strategy to get rid of your debt.

Pros and cons of online debt consolidation

No financial solution is right for everyone. Take a look at some of the potential benefits and pitfalls of online debt consolidation.

Advantages of online debt consolidation

  • Digital lenders can be faster than traditional lenders, with funds in your hands in 24-72 hours.

  • Loan proceeds are made in a lump sum, allowing you to get rid of debt immediately.

  • The new loan payment is the same amount each month, making it easier to budget.

  • The interest rate is fixed, which protects you from fluctuations in the economy.

  • Personal loans and home equity loans tend to have lower interest rates than credit cards.

  • A lower interest rate could help you get rid of your debt faster.

  • Loan terms range from 2–30 years, which allows you to choose what works for you.

  • A longer payment term could help you lower your monthly payment, which could give your budget some breathing room.

  • Home equity loans can offer higher loan amounts.

  • Some options don’t require good credit.

  • On-time payments on a debt consolidation loan could have a positive impact on your credit.

  • Paying off your credit cards could have a positive impact on your credit.

Potential downsides to an online debt consolidation loan

  • Not everyone qualifies for a loan.

  • Not everyone qualifies for a lower interest rate.

  • With a home equity loan, you could lose your home if you don’t repay the loan.

  • If you opt for a longer repayment period, you'll pay more interest overall, even if you get a lower rate.

  • If you opt for a quicker repayment, your monthly payments could be high.

  • If your home’s value decreases, you could have a hard time selling it for enough to cover your debt.

  • If you continue to use credit cards, a consolidation loan might not help you get rid of your debt.

  • The minimum loan amount might be higher than what you need.

Steps to start online debt consolidation

Here are some steps to start the process for getting an online debt consolidation loan:

  1. List your debts and payments.

  2. Get a free debt assessment.

  3. Compare loans by checking with lenders who offer prequalification with a soft credit check.

  4. Choose a lender and apply for a loan online.

Tips for a successful online debt consolidation process

Getting approved for a loan takes a little work. Here are some tips for a successful loan process:

  • Know how much you want to borrow. Lenders have minimums and maximums, so you’ll want to start your search with a lender that offers the right size loan. 

  • Know how much you can afford to pay each month. Stay in your comfort zone and don’t be tempted to borrow more even if you qualify.

  • Lenders will want to verify your identity and finances. Be prepared to provide a copy of your ID, information about your employer, and copies of pay stubs, tax forms, bank statements, or other documents that prove your income. 

  • Look up your credit score and review your credit reports. Your bank or credit card issuers might offer free credit scores, and you can get free credit reports at If you find errors, get them corrected while viewing your credit reports.

  • Get prequalified before applying for a loan online. Know what you’re likely to be offered before you formally apply, because each time you apply for a loan, it can have a temporary negative impact on your credit.

Aaron Crowe

Aaron Crowe is an Achieve contributor. He is a freelance journalist who specializes in writing about personal finances. He has worked as a reporter and editor at newspapers and websites for his entire career.

kim rotter 2022 2

Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.

Frequently asked questions

Not if you pay on time each month and ultimately pay the loan off completely. 

However, your credit score could drop at first because the lender will check your credit with a hard inquiry, which could lower your score temporarily.

Getting approved for a loan depends on your specific credit history and financial situation. Some people with a lot of debt to consolidate have high credit scores because they are keeping up with payments. Some people have lower credit scores because their credit cards are maxed out or they’ve fallen behind on payments. So there is no single answer to this question.

You need to meet the lender’s credit requirements and have enough income to afford the payment. If you’re letting the lender directly pay off other debts, they will take that into consideration when they calculate whether you can afford the payment.

Debts from credit cards, student loans, medical bills, private debts, payday loans, and higher-interest personal loan debt are the most popular types of debts to consolidate. You could consolidate a car loan, but most people don’t because car loans are usually cheaper. Mortgages are consolidated in a different way. If you want to lump your home loan with your other debts into a single payment, you'd want to look at a cash-out refinance loan.

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