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Debt consolidation is just one strategy you can use to help with your finances. Essentially, it’s a way to pay off one or more lines of credit in exchange for a loan that’s better suited to complement your financial goals. 

Reasons to Consolidate Debt

There are various personal incentives that make consolidating with a personal loan an attractive option to explore. Here are a few of them.

Pay Off Credit Balances

Paying off your credit card balances with a personal loan could help you save on interest, increase your credit score and change your debt from revolving to installment debt, among other benefits.

Revolving debt is the form of debt that many credit cards use. You’re given a limit, and you can utilize as much or as little of the credit line as you wish, without paying a set amount or making a pre-defined number of payments. Most consumer credit cards are categorized as revolving credit, and the amount you use has a considerable effect on your utilization ratio and credit score.

Installment debt is one that involves a regular payment with a start and end point, such as a mortgage, auto loan or student loan. Regular, on-time payments on these types of loans helps your credit profile because it shows creditors that you’re responsible and can handle long-term payments. By paying off your debt with a personal loan and moving your balance to an installment loan, you could see an increase in your score and the payment plan could help you get out of debt for good (and save in lifetime interest).

Lower Your Interest Rate

Maybe you’ve made a few positive strides to get your finances on track or you recently got a raise at work. Financial situations change all the time, so you might be able to receive a better interest rate on a personal loan than the existing rate on an older line of credit you have.

Let’s say you have $15,000 in credit card debt and your card has a 17.99% interest rate/17.99% APR, and you are making the minimum monthly payment.* You recently checked out your debt consolidation options and qualify for a 36-month personal loan with a 12.5% interest rate/15.742% APR.

If you decide to continue paying the minimum on your credit card, it will take you 253 months to pay off and you’ll pay $14,581.65 in total interest. If you consolidate your debt with that personal loan offer, you’ll have all of your debt paid off in 36 months and only end up paying $3,064.96 in interest – saving you a total of $11,516.69 in lifetime interest.

*Credit card example above assumes a $15,000 balance making a monthly payment equal to 3% of the remaining monthly balance with a minimum payment of $20 at 17.99% APR as calculated using the CreditCards.com Minimum Payment Calculator versus a RocketLoans Personal Loan of $15,000 including interest and origination fee of $675.

Lower Your Monthly Payment

The flexible repayment terms lenders offer allow you to customize your amount and rate to accommodate your financial goals. If your objective is to lower your monthly payment, you could consider consolidating your existing personal loan to a 60-month term personal loan. Longer terms typically allow you to pay a lower monthly payment, so you’ll have extra cash to put toward a different goal, like saving up for a down payment on a mortgage, or increasing your monthly contributions to your 401k or emergency fund.

Shorten Your Term

Personal loans can help you with your budget. Instead of making the minimum payment on your credit card for years on end, personal loans set realistic payment plans to help you get out of debt in a reasonable time and save money in total lifetime interest. In the example above (based on data provided by the minimum payment calculator from CreditCards.com), you would have “saved” 217 months (or approximately 18 years) of making payments by paying a fixed manageable payment for 36 months.

By moving all of your unsecured debt onto a personal loan, you’ll only have a single payment to make each month.

How to Consolidate Debt

Although consolidating debt isn’t the right option for everyone and all situations, it could significantly improve your finances when it does make sense. Here’s how to do it.

Do Your Research

Before you check out what you qualify for, it’s helpful to know what you want to consolidate:

  • First, check to see the balances and rates on your credit cards so you can compare your current rates to your new options. You can consolidate some or all of the debt you have, including lines of credit you may have from stores.
  • The next step is to check your options for free. You can typically see your options in less than two minutes after filling out a quick form, and checking your rates doesn’t harm your credit score.
  • The last step is to compare your rates and decide how much you want to consolidate. You don’t have to consolidate all of your cards for the convenience of a single payment. However, if all of your cards have a higher rate than your new offers, you may be able to save by combining them all. When choosing your amount, remember to check the origination fee on your loan. Origination fees are deducted from your loan funds before they’re deposited in your bank account, so keep this in mind when selecting an option in case you need to borrow a little more to cover everything.

Apply for a Personal Loan

After you choose the option you like, finishing the last steps of your process is simple: after you’ve applied for the loan you desire, just verify your info and sign your loan! Once your loan is signed, you can receive your money sometimes as soon as the same day.

Getting Approved

So now you know how to consolidate, but what do you actually need to apply? What paperwork do you need to have on hand and what requirements should you be aware of? Here are a just a few other things lenders will look for:

  • DTI (debt-to-income) ratio under 30%
  • Good to excellent credit
  • Good payment history (meaning you’ve made your payments on time)
  • Lines of credit (and that you haven’t opened too many recently)
  • Proof of employment
  • Income proof that shows you’ll be able to safely take on your new loan payments

If you think you meet the minimum qualifications and want to pay off your credit cards or other high interest debt, you can get started and see your options in minutes with RocketLoans.

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This Post Has 17 Comments

  1. Why can’t you get a personal loan unless you make more than 1600.00 a month, but can refinance your home , which is a lot more than a $2000.00 loan, with income lower than the above amount?

    1. Hi Judy:

      Every situation is different, so I’m not necessarily going to be able to comment specifically to you, but I tell you that interest rates are sometimes higher on personal loans. Because of that, it can raise your debt-to-income ratio more. That may be what you’re running into. Hope this helps!

      Thanks,
      Kevin Graham

  2. My credit score has plummeted mid 5’s, due to additional financial responsibilities by taking in my Daughter & grandson ( you do for your kids). About a month behind on EVERYTHING. We own a second home with 100% equity. Is there a quicken program for folks with bad credit but tons of equity ?? Out of options…. looking for an equity line of credit for $50k
    Thanks

    1. Hi Eddie:

      You do need a minimum credit score of 620 in order to qualify for any kind of refinance on your second home. We also do cash-out refinances as opposed to home equity lines of credit. That being said, I do think it would be worth it for you to speak with one of our Home Loan Experts. We may be able to help you come up with a plan to get you where you need to be to qualify and help your finances long into the future. You can give us a call at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  3. In a few words can you explain/ compare rocketloan vs. Quickenloan.

    My parent refinanced about 1 year ago. Could they do it again through. Quickenloan?

    1. Hi Vero:

      Rocket Loans is a personal loan company. Quicken Loans handles mortgages.

      You may be able to refinance again. I’m going to recommend you speak with one of our Home Loan Experts about this. You can call (888) 980-6716 in order to get in touch with them.

      Thanks,
      Kevin Graham

  4. If you use the personal loan to pay off the credit cards does rocketloans look at it as if you have the potential for then double your unsecured debt?

    1. Hi Joye:

      When you take out a personal loan from Rocket Loans or anywhere else, you’re rolling the debt into one loan, but the amount of debt you have stays the same. Taking out the loan and paying off the credit cards should boost your credit score because you’re putting it all in one loan as opposed to having multiple cards with that debt. Hope this helps!

      Thanks,
      Kevin

  5. My husband Sammie Cole, has our house fianance with Quicken Loans. I would like to consolidate my credit card debt. Separated from the house if I could do a personal loan. Thank
    Erma Cole

    1. Hi Erma:

      It’s a pleasure to work with you. We can absolutely look at your options to do a personal loan to consolidate credit card debt. Our friends over at Rocket Loans do personal loans and they would be very happy to help you out. You can get started by visiting their website.

      Thanks,
      Kevin Graham

    1. We can certainly help you look into your options. If you’d like to do a cash-out refinance, you can tap your home equity with an approval from Rocket Mortgage. Otherwise, you can get started over the phone by chatting with one of our Home Loan Experts at (888) 980-6716. If you don’t want to touch your equity, you can also take a look at a personal loan through our friends at Rocket Loans. Hope this helps!

      Thanks,
      Kevin Graham

    1. Hi Carlito:

      There are a couple of different avenues we can take a look at in order to consolidate your loans. One would be to do a cash-out refinance. You can take the equity in your home, convert it to cash and use that to pay off the debt at a lower effective interest rate. If that’s something you want to consider, you can get a complete refinance approval online through Rocket Mortgage. One of our Home Loan Experts would also be happy to take your call at (888) 980-6716.

      The other option if you don’t want to touch home equity would be to take a personal loan. Our friends over at Rocket Loans would be able to help you with a personal loan of between $2,000-$35,000, assuming you meet the qualifications. Hopefully this helps!

      Thanks,
      Kevin Graham

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