Debt consolidation loans can help you bring multiple debts under one roof. It allows you to pay off your existing debts using your funds, so you only have one monthly payment instead of juggling several. Individuals with multiple high-interest debts typically benefit the most from these loans, providing an efficient way to pay obligations off. One potential benefit is lower interest rates, which means you could pay less over time. Another is the convenience of a single payment.

Knowing how to get a debt consolidation loan empowers you to take control of your financial life. An informed application can open doors to better interest rates and terms. We'll walk you through each step of the application process, offer strategies for managing your new loan and even provide a game plan if you're not approved.

7 Steps to Debt Consolidation

A debt consolidation loan is usually a personal loan you use to pay off multiple debts, like medical bills, credit card balances or other loans. It aims to simplify your financial management by merging various debts into a single monthly payment, often with a lower interest rate. It's usually an attractive option for consumers looking to streamline payments and save on interest charges.

Being well-informed on how to get a debt consolidation loan can help you secure better loan terms and set you on a more straightforward path to financial stability. We'll walk you through the nuts and bolts of applying for a debt consolidation loan, from gathering your current debt information to successfully managing your new loan.

mglogo icon
DECIDING BETWEEN DEBT CONSOLIDATION AND DEBT RELIEF PROGRAMS

Debt consolidation and debt relief might sound similar, but they serve different purposes. Both aim to make debt more manageable but go about this goal differently. Debt consolidation loans combine multiple debts into a single loan, usually with a lower interest rate. You still owe the same amount, but it's easier to manage. On the other hand, debt relief is about reducing the amount you owe through negotiations with creditors. If you're looking for simpler payments and lower interest, debt consolidation loans could be your go-to. But debt relief might be the best option if you struggle to make minimum payments.

Gather Information on Current Debts

Knowing the details of your current debts is like having a roadmap for your financial journey. This information helps you determine whether a debt consolidation loan is a good fit for you. For instance, a consolidation loan could offer a much-needed reprieve if your current debts have sky-high interest rates. Having all this data at hand can also speed up your application for debt consolidation loans.

Here's how to get organized:

1

Make a list of all debts to consolidate

Start by jotting down every debt you have, whether it's credit card balances, medical bills or personal loans. A comprehensive list gives you a bird's-eye view of your financial obligations, so you'll know exactly how much you'll need to borrow with the debt consolidation loan.

2

Note interest rates for each debt

Record the interest rate for each debt you've listed. The purpose here is twofold. First, it helps you prioritize the most urgent obligations to consolidate based on how much they cost. Second, knowing these rates is helpful for comparison when you receive an interest rate for your consolidation loan.

3

Check remaining loan terms for existing debts

Look at how many payments you have left on each debt. If some are nearing their end, including them in your consolidation loan may not make financial sense. After all, why prolong the payment period and potentially accrue more interest?

4

Identify any penalties or fees for early repayment

Some of your existing debts may have early repayment fees. Knowing this ahead of time lets you do the math to see if the cost of these penalties outweighs the benefits of consolidation.

5

Summarize total monthly payments for current debts

Add up all your minimum monthly payments, giving you the total amount you pay monthly without a consolidation loan. It can help you gauge whether a consolidation loan can offer a more manageable, single monthly payment.

Armed with this detailed information, you're setting yourself up for a successful application for debt consolidation loans. The prep work ensures the loan you choose aligns with your financial goals, making your path to debt freedom more straightforward and achievable.

Make a Debt Consolidation Plan

A debt consolidation plan helps ensure you're making a thoughtful financial move. When you can visualize your path forward, you're in a better place to access a debt consolidation loan that works for you.

Here's how to build an effective debt consolidation plan:

  • Calculate the total loan amount you'll need: Sum up all the debts you plan to consolidate. This process will give you a precise figure to aim for when applying for your consolidation loan. It's the starting point of your debt-free journey.
  • Determine the monthly payment you can afford: Take a good look at your monthly income and expenses. Figure out a realistic monthly payment, given your financial situation. This helps ensure you won't struggle to meet your new loan's monthly demands.
  • Explore repayment term options: Lenders often offer varying terms for repayment. Knowing the term length that suits your budget helps you avoid loans that stretch your finances too thin or rack up more interest over time.
  • Create a timeline for paying off the consolidated debt: Set clear milestones for repayment. Knowing your start and end dates keeps you motivated and on track. It's like having a finish line in sight during a race.
  • Plan for unforeseen financial hiccups: Always have a backup plan for unexpected situations like job loss or medical emergencies. Whether it's a small emergency fund or a list of cuttable expenses, having a contingency plan provides a safety net.

Being thorough with your debt consolidation plan equips you with the know-how to get a loan that aligns with your financial goals. With it, you're not just consolidating debt — you're taking control of your financial future.

Check Your Credit Score

Your credit score is like a financial report card, showing lenders how responsible you've been with borrowed money. It plays a key role in your application for debt consolidation loans. Scores range from 300 to 800, and higher ones can boost your chances of approval. It can also get you a lower interest rate, saving you a lot in the long run.

If your score isn't looking great, don't panic. Here are some practical fixes:

  • Pay bills on time: Consistent, timely payments account for about 35% of your credit score. Consider automatic payments or calendar reminders to help you avoid missing a due date, thus helping to improve your score over time.

  • Reduce credit card balances: High credit utilization, which means using a large percentage of your available credit, can pull your score down. Work on bringing your balances below 30% of your credit limit. For example, if you have a credit card with a $10,000 limit, try to maintain a balance below $3,000.

  • Diversify your credit mix: Your credit score considers the various types of credit you have, like credit cards, retail accounts, installment loans and mortgages. A healthy mix can indicate to lenders that you can responsibly manage different kinds of credit. But remember, don't open new accounts just for the sake of diversifying — make sure it aligns with your overall financial strategy.

Be mindful when checking your score. A "soft" inquiry won't affect it, but a "hard" inquiry will. Knowing this is helpful when shopping around for a debt consolidation loan. Knowing your credit score is a tool for securing a loan that fits your financial picture.

Find and Compare Debt Consolidation Loans

Comparing different debt consolidation loans is like shopping for the right pair of shoes — the right fit can make all the difference. This step can help you find the best interest rates and save money in the long run. Pay close attention to interest rates, as even a slight difference can add up over time. Don't forget to check for hidden fees like origination fees. Overlooking these can cost you more than you anticipated. Another critical factor is the loan terms and conditions. Make sure you can comfortably meet the monthly payments and check if there are any penalties for early repayment.

Before finalizing your choice, take some time to review the lender's reputation and customer feedback. A well-regarded lender is more likely to offer a smooth borrowing experience. Knowing what to look for and where to apply can make your debt consolidation journey much more manageable.

mglogo icon
PREQUALIFICATION AND LOAN COMPARISONS

Prequalification serves as your first step in comparing lenders for debt consolidation loans. By submitting basic financial information, you'll get a preliminary view of your potential loan terms, such as interest rates and payment plans. The best part is that it uses a soft credit check, keeping your credit score unaffected. It allows you to weigh multiple offers without any downside, making finding a lender that aligns with your financial needs easier. So, before diving into an application, use prequalification to navigate your options more wisely.

Complete Your Application

When you're finally ready to submit your debt consolidation loan application, ensure all your financial information is accurate and up-to-date. The lender will review this data closely to determine your eligibility and interest rate. Organizing your documents, including recent pay stubs, tax returns and debt records, can speed up the process.

At the closing stage of your debt consolidation loan application, accuracy and attention to detail make all the difference. It's when you finalize your loan terms, lock in your interest rate and review the final agreement. Make sure to double-check the loan amount and interest rate to ensure they match your initial offer. Any discrepancies could delay the closing process. Once everything looks good, you'll sign the contract, and your lender will disburse your loan. Thoughtfully taking these steps helps you maximize your effort to consolidate debt.

Receive Your Funds

After your lender approves your loan, you could receive your debt consolidation loan funds in two ways.

Some lenders disburse the money directly to your creditors, streamlining the process for you. This can be helpful since it eliminates the temptation to spend the funds on something else. Others may deposit the money into your bank account, giving you the control to pay off your debts. The downside is that you'll have to refrain from using that money for other expenses.

If the loan amount is less than your total debt, focus on paying off high-interest debts first. If it's more, consider making extra payments or saving the surplus. Responsibly managing these funds will help maximize the benefits of debt consolidation loans.

Begin Repaying Your Loan

Your first payment usually comes due a month after receiving your loan funds. To make life easier, you might consider setting up automated payments — it can help you avoid late fees and even positively impact your credit score over time. But if automation isn't your thing, there are other strategies to ensure you make your payments on time.

  • calendar icon

    Calendar Reminders

    Set up reminders on your digital calendar, like Google Calendar, or even mark the dates on a wall calendar. The idea is to trigger a visual cue that says, "Hey, it's time to make a loan payment." Do this a few days before the due date to ensure your bank account has sufficient funds.

  • smartphone icon

    Budgeting Apps

    There are apps like Mint or YNAB that not only track your spending but can also alert you about upcoming bills. Input your debt consolidation loan information and due dates, and the budgeting app will help you allocate a portion of your monthly income to cover the payment.

  • subscribe icon

    Payment Alerts

    Many lenders offer the option of SMS or email alerts. When enabled, you'll get a notification saying, "Your payment is due in X days." This is handy if you have a variable income and need to shuffle funds around to make your payment.

Consistently making timely payments is necessary to avoid harming your credit score and racking up late fees. If you can afford it, making additional or higher-than-minimum payments will help you become debt-free faster and save you money in interest.

Managing Your Debt Consolidation Loan

Knowing how to responsibly manage your debt consolidation loan is like having a roadmap for financial freedom. If you veer off course, you might face two main consequences. First, missed or late payments can lower your credit score, making it harder to qualify for credit in the future. Second, mismanagement can lead to accrued interest and fees, costing you more in the long run. With that in mind, let's look at some actionable steps to keep you on the right path:

  • Track Your Payments: Utilize apps or spreadsheets to monitor your monthly obligations. These tools will visually represent your financial landscape, helping you prioritize and make timely payments.

  • Regularly Review Loan Statements: Go through your monthly statements to confirm payments, check for errors and stay aware of the remaining balance. Understanding these details lets you make informed financial choices, like making extra payments when possible.

  • Stay in Communication With Your Lender: If you foresee difficulty making an upcoming payment, talk to your lender in advance. Many lenders offer temporary relief options, such as deferral or restructuring, that could save you from defaulting.

Managing your debt consolidation loan will help you take control of your financial future. Utilize these tips, and you'll be on the right track to make the most of your debt consolidation loans.

mglogo icon
LIMITS OF DEBT CONSOLIDATION LOANS

Getting a debt consolidation loan can make your financial life a bit easier by combining multiple debts into one payment. But let's be clear — these loans are not a magic fix. A debt consolidation loan alone won't solve the issue if you're struggling with debt because of poor spending habits or lack of budgeting. It can provide short-term relief, but without financial education and planning, you could find yourself right back where you started. While it's a valuable tool, remember it's only part of the bigger financial picture. Use it responsibly and consider it a stepping stone towards better money management.

Handling Loan Application Denials

So you've done your research and applied for a debt consolidation loan, but then you get the news — the lender denied your application. It's disappointing, but it's not the end of the road. Instead of seeing it as a setback, treat it as an opportunity to recalibrate and update your approach going forward. Below are some actionable steps to improve your chances for future applications and explore other avenues for debt management.

  • Request a Lower Amount: If your initial loan amount is too high, the lender might not feel comfortable lending that much. Try requesting a smaller amount that's easier to manage.

  • Consider a Different Lender: Lenders have different criteria. If you're denied by one, another may approve you. Make sure to research before applying again.

  • Applying With a Co-Signer: Having someone with a good credit score co-sign your loan can sometimes tip the balance in your favor.

  • Think About a Debt Management Plan: You can access these services from many credit counseling agencies. They'll handle negotiations with your creditors to reduce your interest rates and monthly payments.

  • Consider Other Options for Debt Management: There are alternative routes like balance transfers or negotiating directly with creditors. Weigh these options carefully.

Don't lose heart if your lender denies your application for a debt consolidation loan. Use this experience as a learning opportunity to improve your future attempts. Assess the reason for denial and work on that specific issue. And remember, a denial today doesn't mean a denial forever. Keep exploring your options.

FAQ About Applying for Debt Consolidation Loans

Getting the information you need about debt consolidation loans can make a world of difference when you're ready to take action. As you consider applying for a debt consolidation loan, we addressed some questions you might have, allowing you to make thoughtful financial decisions.

About Christopher Boston


Christopher Boston headshot

Christopher Boston is a Senior Manager of Content Strategy and SEO at MoneyGeek. For over half a decade, they have crafted hundreds of articles spanning the higher education, mortgage and personal loan industries. Christopher is passionate about using their skills and experience to create quality content that helps people save and spend their earnings efficiently.


The content on this page is accurate as of the posting/last updated date; however, some of the rates mentioned may have changed. We recommend visiting the lender's website for the most up-to-date information available.

Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any bank, lender or other entity. Learn more about our editorial policies and expert editorial team.