This, again, is an option if you have good to excellent credit. Debt consolidation loans, also known as personal loans, from an online lender bank or credit union are great options if you have several debts and want to consolidate them into one loan. Usually, they offer lower APRs on your debt, if you have decent credit, and they help you pay off your debt faster.
Benefits
What’s nice about these loans is you can often find out if you prequalify online within minutes. Checking to see if you’re prequalified for these loans will not ding your credit. The ding to your credit will happen if you choose to go through with a loan, but usually, because you are consolidating your debt and freeing up credit on your credit cards, your credit score will shoot up several points after the loan pays off all your credit cards.
Drawbacks
I do not recommend this option if you have to get a secured loan, meaning you have to put up your home or other collateral in order to receive a good interest rate. Credit card debt is unsecured, meaning you won’t lose your home if you’re late on your payments or if you are unable to pay your debt back.
Using a secured loan to pay off your credit card debt could mean that if for some reason you lost your job and couldn’t afford the payments, your collateral (often your home) can potentially be taken away in order to pay for the debt.
Important Things to Note
Another thing to watch out for these loans are unnecessary fees like origination fees, and early repayment fees (if you pay off the loan early) so be sure to do your research before accepting any of these loans.
With this option, especially because it will free up credit on your credit cards, I cannot emphasize enough how you MUST address your spending behaviors and how you got into this debt before pursuing this. If you’re going to use your credit cards in the same way as before– I do not recommend this option.