Types of Debt Consolidation Loans

Key Takeaways
  • Debt consolidation loans transfer balances from multiple accounts into a single loan.
  • Consolidation loans can be unsecured or secured.
  • Collateralized loans often use your home or retirement accounts to secure the debt.
  • Personal loans or credit card balance transfers are unsecured loan options often used to consolidate debt.

Consolidation loans can simplify repayment by rolling all existing debt balances into a single loan. In most cases, you end up with a set loan term with a fixed rate and payment, so you know exactly how long it takes to repay the debt.

The challenge is that there are many ways to consolidate debt. The following are the most common, along with the benefits and drawbacks of each:

Credit Card Balance Transfers

A balance transfer consolidates debt by moving balances from high-interest credit cards to a low or no-interest card. Promotional periods last from six to 18 months. At the end of the promotion, the rate converts to a higher interest charged on any remaining balance.

Apply for a Personal Loan Today

Choose Your Loan Amount


  • Credit cards offer 0% or low introductory rates for up to 18 months.
  • It allows you to pay off smaller balances through interest savings.


  • You must have good to excellent credit and adequate income.
  • Lenders charge balance transfer fees of up to 5%.
  • You will pay higher interest on balances not paid off by the promotion’s end.

When is it a good option? Balance transfers are best when you can pay off the total amount by the end of the promotion.


Home Equity Loans and Lines of Credit:

Home equity increases through appreciation and paying down the mortgage. Lenders typically permit loans up to 80% of the home’s value, minus mortgages, securing the debt with your home.


  • Home equity loans offer low-interest rates and terms of up to 30 years, making payments affordable.


  • You lose equity in your home.
  • High closing costs can add up to thousands of dollars.
  • It can take up to two months to close the loan.
  • Converting unsecured debt to collateralized debt puts your home at risk if you cannot afford the payment.

When is it a good option? Home equity loans are generally better than lines of credit because they provide a set rate and term. It could be a good option if you pay off the loan with in five to seven years and do not charge additional purchases to your newly paid-off credit cards.

Get Help Reducing Your Debt

Choose Your Debt Amount

Retirement Account Loans

Loans using retirement funds secure debt with your 401k or company-sponsored account. You repay the debt through payroll deductions and can usually borrow up to 50% of the account balance up to $50,000.


  • Easy to qualify.
  • Does not require underwriting or credit checks.


  • Reduces funds for retirement.
  • Loans could be considered a distribution if you change jobs or cannot repay the debt.
  • Employers may not allow you to contribute to the account during repayment.

When is it a good option? Tapping retirement funds is risky. While it is better to borrow than take a distribution, it should be used as a last resort because it could compromise your retirement.

Personal Loans 

Personal loans are among the fastest-growing option because it does not require collateral or perfect credit. You can often borrow enough to transfer all your credit card balances. While lenders review income and creditworthiness, many will approve applications even with marginalcredit. Online lenders have streamlined processes allowing you to receive funding within a few days.



  • Accepts less than perfect credit.
  • Does not require collateral.
  • Can receive funds within a few days.


  • Lenders may charge loan fees.

When is it a good option? Personal loans are often the preferred choice because it does not put assets at risk. Lenders review your credit, income, and current debt levels to determine eligibility, and even those with imperfect credit can qualify.

  • What are the best ways to consolidate debt?

    The goal of consolidating debt is to speed up repayment. Any means that accomplishes this, without adding more risk, is a win. Converting unsecured debt to a secured loan adds risk because you could lose the asset. On the other hand, personal loans do not require collateral and can be large enough to roll all unsecured debts into a single loan giving you one monthly payment at a set rate and term.

  • What types of loans can I get to consolidate debt?

    There are two basic types of consolidation loans: loans secured by assets and loans that are not. Assets used to secure a debt can include your home, retirement funds, or even whole life insurance. Unsecured loans do not require collateral and include credit card balance transfers and personal loans.

  • How can I combine my debts into a single payment?

    Debt consolidation can simplify the repayment process and, in most cases, will save you money, allowing you to pay off debt faster. In many cases, you can get a personal loan that is large enough to transfer all obligations into a single payment.