How to Consolidate Loans

Co-authored by Ryan Baril

Last Updated: April 15, 2023 Approved

Loan consolidation can save you money if done right. You consolidate loans by rolling all your little loans into one bigger one. To come out ahead, you need to find a consolidation loan with a low interest rate and a reasonable term. You can consolidate using a personal loan or a balance transfer credit card. If you consolidate student loans, you have other options.

Method 1

Method 1 of 3:

Finding a Personal Consolidation Loan

1
Make a list of your debts. You can’t choose a good course of action until you know how much you owe. Find all of the debts you want to consolidate and create a list with the following information:
- The amount due
- Your monthly payment
- The interest rate on the loan
- Whether the loan is secured or unsecured (secured loans are tied to an asset, e.g., your car acts as security for the car loan)
2
Check your credit history. Lenders will only make loans if they are confident you can pay them back. Pull a free copy of your credit report and a copy of your credit score. Generally, you’ll need a solid credit score (in the mid-600s) to get a personal consolidation loan.^{[1]
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- Your score might be hurt by errors in your credit report. Check it thoroughly and dispute any wrong information. For example, there might be accounts listed that don’t belong to you, or accounts might be inaccurately listed as in default.
- If your score is low, wait to consolidate. You can pay down debt and improve your credit score first.
3
Research consolidation loans. Many lenders offer these loans. In fact, you probably get offers in the mail. You can ask your bank or credit union for a personal consolidation loan. You might also approach online lenders. Consider the following:
- Don’t use a secured loan to consolidate unsecured loans. For example, a lender might say, “Sure, we’ll give you a $20,000 consolidation loan, but we want you to put your home up as collateral.” If you default on a secured loan, the lender can take the collateral.^{[2]
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- Pay attention to both interest rates and the term (length) of the repayment period. Don’t focus only on the monthly payment.
- Research online lenders closely. They should have a physical address listed on their website and use encryption when you submit information. Check with the Better Business Bureau if there have been complaints.^{[3]
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4
Assess your priorities. Loan consolidation can save you money in 2 ways—it might lower your monthly payment or it might lower the total amount you end up paying back. Some loans will do both, but some will do only 1 or the other.
- For example, you might find a consolidation loan that will cut your monthly payments in half. It does this by stretching out the repayment period to 20 years. You’ll end up paying more over the life of the loan.
- In some situations, however, you might be focused only on cutting your monthly payment. For example, you might have lost your job. In this situation, a lower monthly payment will give you some breathing room, and you can refinance the consolidation loan later.
Contact the lender and provide all required paperwork. You’ll have to provide a bunch of information, such as personal identification, proof of income, and your employer information.^{[4]
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After you’ve been approved, the lender will probably send you a check. Don’t go shopping! You need to use these funds to pay off your smaller loans. Pay them off in a timely manner and then commit to paying back your consolidation loan.
7
Consider other options. Loan consolidation might be unnecessary or not the right choice for you. For example, if you’ve recently fallen on hard times, you might have other options. Consider the following:
- You can call your creditors and ask that they let you skip a couple payments until you land on your feet. You’ll have to have a good reason, such as a job loss or illness. Also the lender wants to be sure your problems are temporary.
- You can visit a credit counselor and set up a debt management plan. The counselor can negotiate with your creditors to reduce your interest rate and waive late fees and penalties. You make one payment to the credit counselor, who distributes your payments to each creditor.^{[5]
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Method 2

Method 2 of 3:

Using a Balance Transfer

1
Check if you qualify for a balance transfer card. Many credit cards offer a low APR for 12-18 months if you transfer a balance onto them. Generally, you need good credit to qualify—often a credit score over 700. When you transfer, you might pay only a small transfer fee, around 4% of the amount transferred.^{[6]
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- You can find offers for balance transfer cards online. Visit websites such as NerdWallet or Credit.com to compare offers.
- You might already have a balance transfer card. Check your statements.
2
Avoid transferring large amounts. You’ll only come out ahead if you can pay off your debts before the 0% APR period ends. If you can’t, then the interest rate will zoom up, often over 15%, which will cost you a lot of money.
- The interest rate on a personal loan will be lower than 15%, so avoid using a balance transfer unless you can pay everything off early.^{[7]
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Transferring is easy. You simply tell the credit card company the account you want transferred and the amount. The amount should show up on your next statement.
4
Pay your bills on time. The 0% APR is only good if you make monthly payments in full and on time. If you don’t, then you’ll lose the introductory rate and probably pay penalties and fees on top of it.^{[8]
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Research source} Set payment reminders, if necessary. For example, many credit card companies will send a text or an email reminder.
- You’ll have an easier time paying your bills if you create a budget and stop spending. Some people see that their monthly payments are low, so they spend even more. Avoid this.^{[9]
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Method 3

Method 3 of 3:

Consolidating Student Loans

1
List your student loans. Gather all of your monthly loan statements and create a list with the following information:
- The lender
- The amount you owe
- Your monthly payment
- The length of the repayment period
- Whether the loan is federal or private
2
Identify your goals. People consolidate their student loans for different reasons, and the reason matters for purposes of how you consolidate. Consider the following:
- You want to consolidate because you are overwhelmed with paperwork. In this situation, you can consolidate some loans through the Department of Education. You won’t lower your interest rate at all. Instead, the new consolidated loan will be a weighted average of the interest rates on all of your loans.^{[10]
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- You want a lower interest rate. You’ll need to pursue consolidation with a private lender. A lower interest rate will decrease the amount you pay each month. It will also reduce the amount you pay back over the life of the loan (unless the term of the loan is longer).
- You want a lower monthly payment. Generally, you should consolidate with private lenders. However, if you consolidate with the Department of Education, you can seek income-driven repayment plans or extend the repayment period, both of which will lower your monthly payment.
3
Find private lenders. Some of the more popular lenders include SoFi, CommonBond, and Citizens Bank.^{[11]
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Research source} Typically, you’ll need a credit score in the mid-600s, so pull your credit score.^{[12]
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- Check the interest rates offered by each lender. Fixed rates range between 2-9%. Variable rates might be initially lower, but they can zoom up in the future.
4
Ask questions. There are many people who can help you decide which consolidation path is right for you. Talk to your current lender and discuss your options. Consider asking the following questions:
- “Are all of my loans eligible for consolidation?” Most federal loans can be consolidated with the Department of Education. However, private lenders set their own rules.
- “If I consolidate my loans with the Department of Education, do I lose anything?” For example, you might lose any credit you have earned if your loans are currently on an income-driven repayment plan.
- “Can I consolidate if my loans are currently in default?”
5
Apply. Gather your student loan information. If you are applying for a private loan, you’ll need information about your financial history: job history, current income, educational background, etc.^{[13]
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- To consolidate with the Department of Education, go to www.studentloans.gov and use your Federal Student Aid ID to log in. You’ll pick which loans to consolidate and choose a servicer. You’ll also pick a repayment plan, which can run from 10-30 years, but income-driven plans are available also.
- To apply with a private lender, you should submit information about your financial background and your student loans. They will make a decision based on this information and your credit history.^{[14]
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6
Consider other options. Your financial difficulties might be temporary. If so, consider different options that will give you some breathing room. There’s no reason to consolidate if you don’t need to.
- You might seek deferment or forbearance, which will allow you to suspend payments on federal loans for a period of time. Contact your lender.
- You might also qualify for income-driven repayment plans on federal loans. Although you can choose these plans after you consolidate, you can also choose them without consolidating. On these plans, you might only pay 1-2% of your disposable income. As your income increases, you can pay more.
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What to do if you are over extended with bills, but have not missed a payment?

Ryan Baril
VP, CAPITALPlus Mortgage
Ryan Baril is the Vice President of CAPITALPlus Mortgage, a boutique mortgage origination and underwriting company founded in 2001. Ryan has been educating consumers about the mortgage process and general finance for almost 20 years. He graduated from the University of Central Florida in 2012 with a B.S.B.A. in Marketing.

Ryan Baril

VP, CAPITALPlus Mortgage

Expert Answer

Call the lender and see if you can work something out to help yourself get ahead. They may be willing to let you skip a few payments or change your payment date.

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