Personal loans are one of the most common tools people use to cover big expenses, pay off credit cards, or get through a tough financial stretch. But it's not unusual to end up with two, three, or even more personal loans at the same time, each with its own balance, due date, and interest rate.
If that's where you are, the good news is yes, you can consolidate personal loan debt. Here's how it works and what your options look like.
Why people end up consolidating personal loans
A few common situations:
- Took out a second loan before paying off the first one
- Used personal loans to consolidate credit card debt, then took out more loans later
- Have loans from different lenders with different rates and terms
- Got approved for a better rate than the original loans and want to refinance
Whatever the reason, the goal is usually the same: one payment, hopefully a lower rate, and a clearer path to being done with the debt.
How to consolidate personal loan debt
There are a few ways to go about it.
1. Take out a new, larger personal loan
This is the most direct route. You apply for a new personal loan large enough to cover all your existing loan balances, use it to pay them off, and then you only have one loan to manage going forward.
This works best when you can qualify for a lower interest rate than what you're currently paying. If your credit has improved since you took out the original loans, or if rates have dropped, this can save you a meaningful amount of money. If your new rate would be similar to or worse than what you have now, it's probably not worth the trouble.
One thing to watch out for: when the new loan funds hit your account, it can be tempting to use some of the money for other things, especially if you've been feeling stretched. Don't. The whole point of the loan is to wipe out your higher-rate debt, and any dollar that doesn't go toward that leaves you worse off than when you started, with the new loan payment on top of debts you didn't fully pay off. As soon as the funds come in, pay off the other loans right away.
2. Work with a debt consolidation company
Debt consolidation companies can help you combine multiple debts, including personal loans, into one program with a single monthly payment. This route can be useful if you're struggling to keep up with payments or if you don't qualify for a new loan with a better rate. Some companies also work to negotiate the amount you owe, depending on the type of program.
3. Use a balance transfer card (in some cases)
This is less common for personal loans than for credit card debt, but some balance transfer cards do allow you to transfer personal loan balances. The 0% intro APR can save you on interest, but the credit limit on a card is usually lower than a personal loan balance, so this only works for smaller amounts.
4. Home equity loan or HELOC
If you're a homeowner with equity, you may be able to borrow against it at a lower rate and use that to pay off your personal loans. The catch is that you're now putting your home on the line, so this isn't a step to take lightly.
What to think about before consolidating
A few things worth running through before you make a move:
- The new interest rate. If it's not lower than your weighted average rate across your current loans, consolidating may not save you money.
- Origination fees. Some loans charge an origination fee of 1% to 8%, which gets taken out of the loan amount and can eat into your savings.
- The total cost over time. A lower monthly payment often comes from a longer loan term, which can mean paying more in interest overall even if the rate is lower. Run the math, not just the monthly number.
- Prepayment penalties. Some loans charge a fee if you pay them off early. Check before you consolidate.
When consolidating makes sense
If you have multiple personal loans and you can qualify for a new loan or program with better terms, consolidating is usually a smart move. It simplifies your finances, can lower your monthly payment, and often saves money over the life of the debt. If you can't qualify for better terms on your own, working with a debt consolidation company is worth looking into as an alternative path.
The main thing is to look at the actual numbers before you sign anything. A simpler payment situation is great, but only if it's actually saving you money.
If you're looking to combine multiple personal loans into one manageable payment, compare our top picks for debt consolidation companies to see which one makes sense for you.
